BEVERLY HILLS, January 14, (THEWILL) – The International Monetary Fund, IMF, has pointed out that efforts by Nigerian authorities to save the naira by rationing foreign exchange, forex, is crumbling gradually.
Attributing the economic failures in Nigeria to “delayed/poorly managed policy adjustment”, it stated that the challenges around forex have pushed inflation to double digits in Africa’s largest economy.
This was contained in the IMF policy paper on macroeconomic developments and prospects in Low-Income Developing Countries, LIDC, on Thursday.
“Domestic policy failures cited include delayed/poorly managed policy adjustment to lower commodity prices (as in Nigeria, where foreign exchange rationing adversely affected debt service capacity of many corporates),” it said.
The global financial institution also blamed the failures on lack of business confidence and delay in policy adjustment by Nigeria’s leadership.
The paper read in part, “There were sharp movements in currencies across many LIDCs during 2015. Further sizeable depreciations were recorded in 2016 in commodity exporters under stress.
“Mongolia, where reserve levels have been significantly eroded, and Nigeria, where efforts to support the naira through foreign exchange rationing, have gradually crumbled.
“Inflation has risen to troubling levels in a handful of cases, concentrated in sub-Saharan Africa. Among commodity exporters, large exchange rate depreciations were a key contributor in Mozambique, Nigeria, and Zambia.”
The fund stressed that Nigeria is affected by Boko Haram-led attacks in the North and disruptions to oil production in the Niger Delta region.
“Aside from direct damage and increased security outlays, conflict situations undermine business confidence, investment, and tourism,” it stated.
IMF also said Nigeria’s financial challenges affected neighbouring countries like Chad, which also plunged into a recession, and Benin.
It continued, “External developments have predictably played an important causal role in the emergence of financial sector stress, through falling commodity prices, declining remittances, and adverse spillovers from neighbours — as in the impact of Nigeria’s economic difficulties on Benin Republic.
“That said, teams’ assessments indicate that poor macroeconomic policies and weak supervision have also played a significant contributory role.”
The fund said that the recent experience of LIDCs underscored the relevance of some general messages for developing countries in terms of building economic resilience, which include “the value of having a diverse export base to allow countries handle adverse external shocks, and hence the importance of promoting economic diversification.
Others are the importance of building large foreign reserve/asset positions during “good times” in countries where exports remain highly concentrated; and the need to build a strong broad based domestic tax system drawing from a diverse set of sectors and tax instruments, to strengthen self-reliance in financing essential public service.
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