Naira under pressure, Nigeria may seek dollar loan –IMF


The International Monetary Fund has said the naira is
currently under pressure and Nigeria is free to seek loan from the Fund to
stabilise the currency if it considers a good option.


The Washington-based lender however noted that recent
exchange reforms and other steps taken by the Nigerian authorities were in


It also expressed support for Olayemi Cardoso-led Central
Bank of Nigeria’s last week’s decision to halt the eight-year foreign exchange
ban on cement, rice, poultry products and 40 other items.  The past administration of the CBN had
imposed the forex ban in 2015.


The made this known at the World Bank Group/International
Monetary Fund Meeting in Marrakech, Morocco.


IMF said inflation in Nigeria was till high at 26 per cent
in August while the naira continued to be under pressure.


The local currency, which fell from about 450/dollar to an
average of 760/dollar following the exchange reforms of the President Bola
Tinubu, has continued to drop at the parallel market.


The local currency plunged to 1045/dollar on Thursday.


While reiterating the need to tighten monetary policy by
raising the Monetary Policy Rate and mopping up excess naira liquidity, the
bank said foreign exchange market confidence could benefit from more clarity on
Central Bank of Nigeria dollar obligations.


A JP Morgan report put the Central Bank of Nigeria forward
contract obligations at $6.8bn but stakeholders said the amount could be more.


In a response to emailed questions by The PUNCH on whether
the Fund is open to giving Nigeria a dollar loan to support the naira, the Fund
said, ‘Nigeria is facing high inflation of 26 percent year-on-year in August
and pressure on the naira. In June, the authorities unified the different
official exchange rate windows. This was a welcome step as will help to strengthen
the functioning of the foreign exchange market. We also welcome the CBN’s
recent decision to lift the ban on the 43 items previously restricted from
accessing foreign exchange from the official window. This is a positive step in
the direction of a shift to a market-determined exchange rate regime.”


It further stated that “the authorities should urgently
tighten monetary policy and take measures to ensure markets maintain full
confidence in the Central Bank of Nigeria. Tightening monetary policy will have
to include raising the Monetary Policy Rate and mopping up excess naira
liquidity. Market confidence will benefit from more clarity on Central Bank of
Nigeria dollar obligations.”


On the possibility of a currency support loan, it said, “As
every member country of the IMF, Nigeria can seek IMF financing if they see
this as helpful to address external imbalances. The Nigerian authorities have
not approached the IMF with a request for financing.”


Meanwhile, the IMF has said it is confident the new CBN
governor, Cardoso, and the new Minister of Finance and Coordinating Minister of
the Economy, Wale Edun, have the capacity to take right decisions to boost the
fortunes of the economy.


Edun had during the World Bank/IMF meeting listed a number
of fiscal initiatives aimed at collecting more tax revenue and reducing waivers
to boost economic growth.


Also, Cardoso had listed plans to stabilise the market and
navigate the country through the current turbulent economic challenges.


The CBN governor said the new leadership team would review
foreign exchange market policies, the central bank corporate governance
practices and monetary policies to reposition the apex bank to achieve its core


Already, he said the new team members, who resumed fully at
the bank a few weeks ago following their confirmation by the National Assembly,
was currently carrying out a comprehensive assessment of the challenges facing
the central bank.


According to him, the ongoing assessment of the bank will
lead to tweaking or jettisoning of some policies as part of a wide-ranging
programme to reform the bank as a catalyst for economic growth and development.


In a document titled, “Preliminary assessment of challenges
facing the Central Bank of Nigeria”, Cardoso outlined the challenges facing the
CBN and introduced high-level proposals aimed at addressing reformation


He also examined the role of a refocused central bank in
supporting the economic agenda of President Bola Tinubu.


He also harped on what should be put in place to revert to
evidence-based monetary policies, including the discontinuation of unorthodox
monetary policies and foreign currency management, unorthodox use of Ways and
Means spending, and development of control limits in the use of Ways and Means
in financing public sector deficit.On the backlog of FX demand, Cardoso
emphasised the need for creative financing options for clearing the short to
medium-term backlog.


The new central governor also plans to place a limit on the
CBN’s fiscal side interventions, while also proposing responses to addressing
inflation and price stability issues.


Cardoso said, “These problem statements need in-depth review
by the new Central Bank leadership team to determine what mechanisms are
currently working, what can be tweaked or dispensed with and what new tools
need to be introduced”


On how the CBN can be refocused to support economic growth,
he said, “The economic policy proposals of the administration identify a set of
fiscal reforms and growth targets that will achieve $1tn GDP within eight


 In reviewing selected
BRICS and MINT countries, with large populations and similar developmental
characteristics as Nigeria, it is interesting to identify macro-economic
indices that point to Nigeria’s economic trajectory, given the faithful
implementation of the proposed economic reforms. In economies bigger than $1tn,
these indicators include moderate inflation, sizable foreign reserves, and the
capacity to quickly rebound from a cyclical economic downturn.”


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