Unify The Exchange Rate For Naira, IMF Tells CBN

Nigeria’s Central Bank Governor Mr Godwin Emefiele (left) and Nigeria’s Minister of Finance, Budget and National Planning, Zainab Ahmed at an event

International Monetary Fund (IMF) has charged the Central Bank of Nigeria (CBN) to unify the exchange rate for the naira. The CBN as at last week exchanged the US dollar at N378 as official rate while in the parallel market, the dollar exchanged for as much as N500.

The Nigerian Naira, which has become so unstable and unpredictable got to a long-time low after weakening by N4 from N496 to dollar it closed on Friday. The IMF said the Nigerian economy is struggling with multiple shocks and is expected to grow by -4.3 per cent in 2020 before a modest recovery in 2021 (1.7 per cent).

The IMF insists that exchange rate rigidities have constrained the economy’s ability to absorb external shocks. It called for unified exchange rate for the naira to promote growth and attractive foreign capital. According to the IMF, foreign exchange backlog and shortages are intensifying Balance of Payment (BoP) pressures insisting that exchange rate unification was imperative to reduce BoP risks.

IMF said fiscal deficit will stay elevated in the medium term, while additional domestic revenue mobilisation is required to reduce fiscal risks. The Fund further stated that fiscal transparency measures to be introduced to facilitate tracking. It also advised that the dependence on Central Bank of Nigeria’s overdraft for fiscal funding should be annulled, adding that conflicting objectives have undermined monetary policy effectiveness. The Fund advised that policy strategy should be strengthened to establish price stability.

Nigeria’s CBN Governor, Mr Godwin Emefiele however said the economic challenges posed by the coronavirus (COVID-19) pandemic to Nigeria and other global economies will soon end with the discovery of vaccines to tackle the heath problem. The CBN boss who spoke at the Annual Bankers Dinner, organised by the Chartered Institute of Bankers of Nigeria (CIBN) in Lagos, said the coming of vaccines will also help to support growth in the medium term, by aiding full restoration of economic activities particularly in service related sectors such as education, aviation, hospitality and tourism.

Nigeria’s Gross Domestic Product (GDP) contracted by -3.4 per cent in the third quarter, a welcome improvement from the – 6.1 per cent recorded in the second quarter. The contraction, however, officially put the economy in recession, which the CBN bank said it will exit by first quarter of 2021 although economic experts believe otherwise.

Emefiele explained that following the recession, Nigeria witnessed 12 consecutive quarters of economic expansion, and Gross Domestic Product (GDP) growth in the fourth quarter of 2019 stood at 2.55 per cent. He said before the pandemic, Nigeria’s exchange rate remained stable for over two years at N360/$ and external reserve witnessed significant accretions from the sale of crude oil and continued inflows from foreign investors.

He said, “Our banking system remained strong, as key indicators reflected improvements across several areas. Capital adequacy ratio for the banking industry was above 15 per cent, surpassing the prudential requirement. The ratio of non-performing loans declined from 11 percent in April 2019 to less than 6.1 per cent by January 2020. Our intervention efforts in the agriculture and manufacturing sectors continued to support employment generating activities and improved local production of goods that can be produced in Nigeria,” he said.

Emefiele said the onset of the COVID-19 pandemic in the first half of 2020, and the lockdown measures put in place to contain the spread of the virus, caused an unprecedented shock to the global economy. Global economic downturn, which was particularly significant in the second quarter of the year, saw declines in growth in advanced and emerging market countries.

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