The IMF’s African Department Representative Director Ms. Antoinette M. Sayeh said further devaluation of the naira was required “as a way of adjusting to the reality of the current economic conditions”.
The ADR-IMF representative , who spoke at a press conference at the Peruvian capital, said the adjustment was necessary to ease tension for private sector investments, stressing that foreign exchange flexibility plays an important role for investors and their investments.
The Central Bank of Nigeria (CBN) has said a further devaluation of the naira is out of consideration, a stance President Muhammadu Buhari has endorsed.
Insisting that the naira be devalued, the IMF acknowledged that there are other factors, in the case of Nigeria, that call for examination.
“The exchange rate pressures in Nigeria and other oil producers has been considerable in the course of this past year because of what has happened in terms of, for example, exchange earnings as oil prices have reduced considerably, and the demand for foreign exchange in a number of conditions continues to exert considerable pressure on their exchange rates. In the case of Nigeria, of course, a number of other factors have been at play.”
She listed some of these factors to include the last general elections this year and the uncertainty about what the possible outcome of the elections would be. Since the elections, Ms. Sayeh said, “continued uncertainty about the policy direction that the current administration is going to take, the waiting (until lately), for a cabinet and the vision and plans for pursuing the reform effort, and what can be expected from that, continued to be factors that have led to pressures on the naira.”
While acknowledging the measures so far adopted by the CBN in response to the volatility of the exchange rate, the IMF official, however, critised the steps, saying the policies are detrimental to businesses.
In her words:” Of course, the Central Bank has introduced administrative measures that limit access to foreign exchange and that banned certain imports as a way of restricting the demand for foreign exchange. Those are measures that are quite detrimental, we think. It has certainly led to a lot of unhappiness in the private sector, as far as we’ve been aware, and understand that private investors see this as very detrimental to their economic activities. So it’s not something we think is sustainable or advisable. We hope that there will be an opportunity to review those restrictions and permit the exchange rate to continue to adjust.
“The exchange rate being an important instrument of adjustment in countries that have a flexible exchange rate, we think it’s been appropriate to allow the exchange rate to depreciate, with a view to helping to contain the demand for more foreign exchange, and to help contain the level of imports that was not sustainable in light of the shock to the Nigerian economy. So the exchange rate plays a very important role there.
On the restriction of access of foreign exchange for certain imports by the CBN, Ms. Sayeh said the measure was hurting the public.
“ Clearly, some of the products that are being disallowed are products that average Nigerians buy. Those restrictions on those products are already making it harder for the average person to buy milk or to buy milk at an affordable price. So they’re already feeling the impact of those restrictions. Not in a very beneficial way, so we think it’s certainly advisable to have a second look at those,” Ms. Sayeh said.
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