IMF to Buhari: ‘Remove restriction on access to forex’

The International Monetary Fund (IMF) has urged President Muhammadu Buhari to remove the restrictions around Nigeria’s foreign exchange policy.

The Fund advised that Nigeria’s exchange rate should be allowed ‘to reflect market forces more’ while also advising that the federal government should focus on improving the ‘functioning of the interbank foreign exchange market’.

Nigeria’s growth was also projected to improve slightly to 3.2 per cent in 2016 ‘but could rebound to 4.9 per cent in 2017’, the IMF said.

The position of the IMF towards the Buhari’s administration’s policies was made known on Tuesday, in its concluding statement of the 2016 Articles 1V Consultative Discussion on Nigeria.

“In the light of the significant macroeconomic adjustment that is needed to address the permanent terms-of-trade shock, it will be important for Nigeria to put in place an integrated package of policies centred around: fiscal discipline; reducing external imbalances; further improving efficiency of the banking sector; and fostering strong implementation of structural reforms that will enhance.”

“The general government deficit is projected to widen somewhat before improving in 2017, while the external current account deficit is likely to remain flat at 2.3 percent of GDP. Growth in credit to the private sector is projected to recover from the slump in 2015, aiding the increase in activity.”

“Key risks to the outlook include lower-than-budgeted oil prices, shortfalls in non-oil revenues, a further deterioration in finances of state and local governments, and a resurgence in security concerns.”

“As part of a credible package of policies, the exchange rate should be allowed to reflect market forces more and restrictions on access to foreign exchange removed, while improving the functioning of the interbank foreign exchange market (IFEM). Steadfast implementation of structural reforms is key. Adopting a sound Petroleum Industry Bill, including by applying the Anti-Money Laundering/ Combating the Financing of Terrorism framework, will help strengthen the regulatory framework for the oil sector.”

“Nigeria is facing the impact of a sharp decline in oil prices. Exports dropped about 40 percent, pushing the current account deficit to an estimated 2.4 percent of GDP. With foreign portfolio flows slowing significantly, reserves fell to $28.3 billion at end-2015. Foreign exchange restrictions introduced by the Central Bank of Nigeria (CBN) to protect reserves have impacted significantly segments of the private sector that depend on an adequate supply of foreign currencies.”

“Coupled with fuel shortages in the first half of the year and lower investor confidence, growth is estimated to have slowed to 2.8 percent in 2015 (from 6.3 percent in 2014), weakening corporate balance sheets, lowering the resilience of the banking system, and likely reversing progress in reducing unemployment and poverty.”

“Inflation increased to 9.6 percent in December (up from 7.9 percent in December 2014), above the CBN’s medium term target range of 6 –9 percent. With oil prices expected to remain low for a long time, continuing risk aversion by international investors, and downside risks in the global economy, the outlook remains challenging.”

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