If the Federal Government heeds the International Monetary Fund’s (IMF’s) advice, it will collapse the exchange rates—official N306/$ and Bureau De Change N360/$.
To the IMF, the Naira is overvalued by 10 to 20 per cent.
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The IMF mission chief for Nigeria, Gene Leon, said that the Naira overvaluation “is somewhere to the tune of 10 to 20 per cent and that the country’s 2017 projections for non-oil revenues are more optimistic than the Fund’s.
He urged the authorities to increase tax levels to diversify income.
Leon disclosed that the Nigerian authorities were concerned about the IMF’s last week Article IV Report.
The Fund warned that the economy required urgent reforms and spoke of the dangers of a volatile foreign exchange market.
It outlined a raft of failings in the Federal Government’s handling of Africa’s largest economy which could affect talks over at least $1.4 billion in international loans.
But the President of the Association of Bureaux De Change Operators of Nigeria (ABCON), Aminu Gwadabe, said the IMF should explain the yardstick for its advice.
According to him, the IMF has technically said that the official rate of N306/$ should move to N360/$.
Gwadabe said: “The IMF and others look at the bureau de change rate. That is why we are saying there should be a special window for both entry and exit to encourage more capital inflows to supplement the foreign reserves and diversify dollar sources.”
The Naira closed yesterday at N390/$ due to the Central Bank of Nigeria’s (CBN) intervention.
The Managing Director, E.M Consolidated Investment Limited, a BDC operator, Emeka Moses, said the IMF has not explained the basis of its judgment on further naira devaluation.
“Their judgment is not correct. The IMF and their group have since 1980s have been insisting that the naira be-devalued further. But we have continued to devalue to where it is today. The value of the currency cannot be taken singularly. There are many things that determine how the country runs its exchange”, he said.
Moses said that Nigeria has inflationary economy, and cannot devalue more because it is not going to help us and we are trying to encourage local production.
He added: “They are not in a position to give us a comprehensive economy plan, but they are not the ones running our economy.”
The new report, according to Reuters, strikes a more critical tone than the Fund’s board adopted in a statement last week, though that also said the country should lift its remaining foreign exchange restrictions and scrap its system of multiple exchange rates.
The IMF quoted the government saying 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.
“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.
“The World Bank has been in talks with Nigeria for more than a year over an application for a loan of at least $1 billion and the African Development Bank (AfDB) has $400 million on offer. But talks have stalled over economic reforms.
“Nigeria fell into recession last year, its first in 25 years, largely due to the impact of low oil prices and militant attacks on energy facilities in the Niger Delta oil hub. Crude sales account for more than 90 percent of foreign exchange earnings and two-thirds of government revenue.
“The country, whose economy contracted 1.5 per cent last year, has also been plagued by a conflict with Boko Haram militants since 2009, creating a humanitarian crisis in the northeast which authorities are struggling to handle.”
The Washington-based Fund’s analysis coincided with yesterday’s launch of an economic recovery plan by President Muhammadu Buhari.
But the IMF said the plan (Economic Recovery and Growth 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 the Federal Government to introduce immediate changes to its exchange rate policy – characterised by CBN curbs, multiple exchange rates and an artificially high naira valuation – or risk “a disorderly exchange rate depreciation”.
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