By Omoh Gabriel, Business Editor
LAGOS — THE Governor of the Central Bank of Nigeria, CBN, Malam Sanusi Lamido Sanusi, yesterday criticised calls from the International Monetary Fund, IMF, for greater exchange rate flexibility, saying he did not believe the naira exchange rate to dollar was overvalued and that the advice was based on flawed logic.

After ending consultations with Nigeria 10 days ago, the IMF noted in a statement last Thursday that forex reserves had been falling and speculation against the naira could become “intense.”

The Fund said its staff believed the naira, which has traded in a narrow band around N150 to the U.S. dollar for more than a year, was overvalued and that greater flexibility would cushion external shocks to Nigerian economy.

IMF projections
Vanguard had reported two weeks ago that the IMF had projected that the naira will further depreciate in the coming years and may exchange for N202.7 to a dollar by 2015.

Projection by the multilateral institution said in 2009, the naira will exchange on the average for N 148.7 to the dollar while in 2010, it will go for N149.9 to the dollar.  In 2011, the naira is projected to exchange for N155.1 to the dollar and in  2012, it will exchange at N166.1 to the dollar.

IMF data projection on the exchange rate of the naira further indicates that in 2013, the exchange rate of the naira will depreciate further to exchange for N177.7 to the dollar and that in 2014, it will exchange for N189.9 to the dollar and in 2015, N202.7 will exchange for one dollar.

As at today, the naira is already exchanging officially at N150.4 to the dollar at the official market. At the parallel market, it goes for as low as N155 to the dollar.

CBN official figures showed that in 2004, the naira exchange rate at the official market as at the end of December was N132.86 while it was N138.71 in the bureau de change.

In 2005, the exchange rate of the naira to the dollar was N130.29 at the official market and N141.93 at the open market by the end of that year.

CBN data equally showed that in 2006, the exchange rate of the naira firmed up to an average of N128.29 in the official market and N129.32 in the open market. In 2007, the naira further strengthened to exchange on the average for N118.21 at the official market and N121.07 in the open market.

In 2008, it lost some value to exchange for N126.48 officially and N137.65 at the open market. In 2009, the naira lost more value to the dollar to exchange for N153.48 in the open market. Last year, the naira suffered some value loss and exchanged for N154.57 to the dollar, according to the CBN.

This trend in the loss of value in the nation’s currency is expected to continue and would by IMF projection, exchange for N202.7 to the dollar in the next four years.

“We do not believe that the naira is overvalued. We do not believe that at a time when the oil price is going up and output is going up we should be losing the value of our currency,” Sanusi while reacting to the IMF report said on CNBC Africa television.

“We also do not think that it makes sense, if the IMF is concerned about inflation, to ask a country that is import dependent to devalue its currency. So the advice given by the IMF, frankly, is not based on sound economic logic.”

Sanusi in early January said he was convinced a stable exchange rate was crucial for maintaining price stability and attracting foreign investment __ said the IMF had gone ahead and published its advice without giving Nigeria’s position.

He said he agreed with the Fund’s assessment that further monetary tightening may be required if inflationary pressures continue, but said it was “naive” to believe that monetary policy alone could rein in rising prices.

He noted that expansion in credit to the private sector had remained weak despite an accommodative monetary policy.

“The link between monetary policy and inflation is at best tenuous, it is theoretical. The reality is that the bulk of inflation is being pushed by structural forces, Sanusi said. So we do agree that we should tighten, but we think the IMF is a bit naive in its overestimation of the potency of monetary variables in the short term,” he said.

The central bank raised the country’s benchmark interest rate by 25 basis points to 6.5 percent three weeks ago and took aggressive measures to tighten liquidity, raising the cash reserve requirement and liquidity ratio for banks in a bid to reduce lenders’ ability to create more money.

Sanusi has made getting inflation into single digits a priority. Consumer inflation edged up to 12.1 percent year_on_year in January from 11.8 percent the previous month, although food inflation eased slightly.

Despite being Africa’s biggest crude oil exporter, Nigeria imports most of its domestic fuel needs because of the shambolic state of its refineries. It also imports everything from rice to toothpicks, due to the neglect of agriculture and manufacturing since it started pumping oil half a century ago.

“We think we need to have a proper structural adjustment to reduce import dependence,” Sanusi told CNBC.”The IMF should talk more to trade issues and other structural reforms that have not been ongoing rather than trying to compel or push the country into an unnecessary round of devaluation,” he said.

He also repeated that four of the nine banks rescued in a $4 billion bailout in 2009 would sign memoranda of understanding with new investors over the next one or two weeks. He said at least two more were in “very advanced” talks and were trying to resolve final details.