The International Monetary Fund (IMF) has warned the Federal Government of an impending doom over its volatile foreign exchange (forex) market and that the economy needs an urgent reform to stay afloat.
In a report published on Wednesday that highlighted the risks to growth, the Fund outlines a raft of failings in the countryís handling of its economy which might affect talks over at least $1.4 billion in international loans.
It strikes a more critical tone than the IMF board adopted last week, that Nigeria should lift its remaining foreign exchange restrictions and scrap the system of multiple exchange rates. The Washington-based Fund’s analysis came on the same day that President Muhammadu Buhari launched his flagship economic recovery plan.
But the IMF said the plan, criticised by economists for including few concrete measures, is not enough to drag the economy out of recession.
If Nigeria’s economy is to recover, “much more needs to be done”, the IMF said in the staff report.
It also urged Nigeria to introduce immediate changes to its exchange rate policy characterised by Central Bank regulations, multiple exchange rates and an artificially high naira valuation or risk disorderly exchange rate depreciation.
That naira overvaluation is “somewhere to the tune of 10 to 20 percent,” Gene Leon, IMF mission chief for Nigeria, said in a separate telephone media briefing.
It also noted that, Nigeria’s 2017 projections for non-oil revenues are more optimistic than the IMF’s, and authorities need to increase tax levels to diversify its income, said Leon.
The Fund said the Nigerian authorities were concerned about the IMF staff report’s view.
Nigerian authorities had said further measures were under way which included the implementation of a more flexible foreign exchange market and “maintaining tight monetary policy to underpin price stability”, according to the IMF report.
Nigeria has not asked the Fund for fiscal support but its recommendations may influence institutional lenders ahead of the annual spring meetings with the World Bank.
Last Thursday, the Fund urged the Federal Government to remove currency-trading restrictions and reduce its budget deficit and debt-service costs to sustainable levels.
In a report by its team to Nigeria, IMF advised that stronger macroeconomic policies are urgently needed to rebuild confidence and foster an economic recovery, adding that there’s a need for a front-loaded, revenue-based fiscal consolidation starting in 2017, to reduce the Federal Government interest-payments-to-revenue ratio to sustainable levels.