By Dipo Olowookere
The International Monetary Fund (IMF) criticized the strategies deployed by the Central Bank of Nigeria (CBN) to deal with foreign exchange (FX) shortages in the country.
In July 2021, the umbrella bank, after a meeting of the Monetary Policy Committee (MPC) in Abuja, announced the halt to sales of foreign exchange to exchange office operators (BDCs), claiming they were part of the crisis. foreign exchange in the country.
At the next MPC meeting, the CBN, through its governor, Mr. Godwin Emefiele, declared the black market illegal and accused a platform aggregating the segment’s rates, AbokiFX, of having manipulated rates, threatening a crackdown. The authorities also ensured that the media, including Business post, to stop reporting parallel market rates, implying that it was against the law.
On Friday November 19, 2021, the IMF, in a statement made available to this newspaper, condemned the central bank’s approach to âpersistentâ currency shortages, stressing that it âhad a negative impact on confidenceâ .
He advised the bank to adopt the floating exchange rate regime and reject the policy of “administrative measures”, stressing that “without urgent tax and exchange rate reforms, Nigeria’s medium-term outlook ( ) face lower-than-normal growth â.
The global lender admitted that “Nigeria’s economy is recovering from a historic slowdown thanks to government political support, rising oil prices and international financial assistance.”
He further noted that the government’s proactive approach had worked wonders in bringing “COVID-19-related infection rates and deaths” under control, but said “with the emergence of fuel subsidies and the slow progress in revenue mobilization, the fiscal outlook faces significant risks.
He said that in the medium term, there are upside risks associated with reaching the production capacity of the Dangote refinery faster than expected as well as the effective implementation of the 2021 law on the oil industry in terms of increased manufacturing output and investment in the oil sector.
Commenting further on the exchange rate system in Nigeria, the IMF wants the CBN to fully embrace the “unified market equilibrium exchange rate” as this “would help build up foreign exchange reserves through larger capital inflows.”
He noted that, âDespite the recent allocation of SDRs and a successful Eurobond issue, gross reserves remain well below the IMF recommended adequacy levels.
âThe slow pace of exchange rate reforms and uncertainties about the ability to repatriate foreign funds have discouraged further inflows of capital. With an external position deemed weaker than implied by Nigeria’s economic fundamentals and desired policies, a narrow export base and limited capital inflows, the mission recommended preserving foreign exchange reserves through sustainable policies. . The mission considered that Nigeria’s capacity to repay the outstanding 2020 Rapid Finance Instrument (IFR) credit was adequate.
He further revealed that “to preserve competitiveness, any exchange rate adjustment should be accompanied by clear communications regarding exchange rate policy in the future, macroeconomic policies to contain inflation and structural policies to facilitate new investments “.