…Calls for macroeconomic reforms, removal of forex restrictions
By Babajide Komolafe
LAGOS — Fund, IMF, ye The International Monetarysterday, said the naira is overvalued by 10 to 20 per cent. Head of IMF Mission in Nigeria, Gene Leon, stated this during a telephone media briefing on the IMF staff report on 2017 Article IV Consultation with Nigeria.
That naira overvaluation is “somewhere to the tune of 10 to 20 per cent,” Gene Leon, IMF mission chief for Nigeria, said.
The IMF in the staff report called for urgent macroeconomic reforms, removal of foreign exchange restrictions, and elimination of multiple exchange rates.
The IMF report stated: “Executive Directors recognized that the Nigerian economy has been negatively impacted by low oil prices and production. Directors commended the efforts already made by the authorities to reduce vulnerabilities and enhance resilience, including by increasing fuel prices, raising the monetary policy rate, and allowing the exchange rate to depreciate.
“However, in light of the persisting internal and external challenges, they emphasized that stronger macroeconomic policies are urgently needed to rebuild confidence and foster economic recovery.
Economic Recovery and Growth Plan
“Directors welcomed the authorities’ Economic Recovery and Growth Plan, ERGP, which focuses on economic diversification driven by the private sector, and government initiatives to strengthen infrastructure—including the recently adopted power sector recovery plan. However, they underlined that without stronger policies these objectives may not be achieved.
“Directors generally emphasized the 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.
“They underscored that priority should be given to increasing non-oil revenue, including through raising VAT and excise rates, strengthening compliance, and closing loopholes and exemptions.
“Administering an independent fuel price-setting mechanism to eliminate fuel subsidies, strengthening public financial management, and developing a well-targeted social safety net would also support the adjustment. Directors stressed the need to contain the fiscal deficit of state and local governments, including through improved transparency and monitoring.
External adjustment is necessary to protect foreign currency buffers
“Directors underscored that external adjustment is necessary to protect foreign currency buffers and reduce vulnerabilities. They commended the recent easing of some exchange restrictions and urged the authorities to remove the remaining restrictions and multiple currency practices, thus unifying the foreign exchange market and helping regain investor confidence.
“Directors emphasized that these policies should be supported by tighter monetary policy and fiscal consolidation to anchor inflation expectations and to limit the risk of exchange rate overshooting, as well as structural reforms to improve competitiveness.
“Directors welcomed the steps to strengthen banking sector resilience through stronger prudential requirements. With asset quality declining, they recommended further intensifying bank monitoring, enhancing contingency planning, and strengthening resolution frameworks. Directors encouraged quickly increasing the capital of under-capitalized banks and putting a time limit on regulatory forbearance.”