IMF Says Nigeria Must Remove Currency Curbs as Growth Slows

  • Economic growth estimated to have slowed to 2.8% in 2015
  • Nigeria needs to boost non-oil revenue, collect more taxes

The International Monetary Fund called on Nigeria to stop pegging its currency and to remove curbs on access to foreign exchange as economic growth is estimated to have eased to its slowest pace in 16 years amid low oil prices.

The economy of Africa’s largest oil producer expanded 2.8 percent last year, compared with 6.3 percent in 2014, the IMF said in a statement on Wednesday. That’s probably reversed progress in reducing widespread unemployment and poverty, while straining the banking industry and company balance sheets, the Washington-based lender said.

“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,” Gene Leon, the IMF’s representative in Nigeria, said in the statement. “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.”

In a bid to conserve dwindling reserves and boost local manufacturing, Nigeria’s central bank last year imposed restrictions on access to foreign currency. The moves have suffocated businesses dependent on imports and encouraged capital flight from foreign portfolio investors. Governor Godwin Emefiele, with President Muhammadu Buhari’s backing, has pegged the naira for almost a year at 197-199 per dollar, even as the unofficial rate has plunged and other major oil producers from Russia to Mexico and Canada have let their currencies slide.

On Tuesday, the naira’s unofficial parallel market rate was 365 per dollar, 83 percent weaker than the official interbank peg. Buhari said last month that he won’t “kill the naira” by allowing it to be devalued and that a weaker currency will only result in higher costs and hardship for the country’s poor and middle-class.

At the same time, Nigeria’s inflation rate has remained above the central bank’s 6-9 percent target band since June and was measured at 9.6 percent on an annual basis last month.

Buhari has also proposed a record 6.1 trillion naira ($30.6 billion) spending plan this year to help revive the economy. Nigeria, which relied on oil for about two-thirds of government revenue in 2014, has seen its finances battered by Brent crude prices falling 44 percent in the past year.

The economy may grow by 3.2 percent this year and 4.9 percent in 2017 if infrastructure investment is prioritized, Leon said. Nigeria needs to boost non-oil revenue and broaden its tax base, while structural reforms, such as passing a revamped Petroleum Industry Bill, are needed to strengthen the oil sector, he said.

“Emphasis should be sustained on doing ‘more with less’ to improve the efficiency of public sector service delivery and create an enabling environment to attract investment,” Leon said. “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.”

The government says it’s making progress in its battle against the Islamist militant group, Boko Haram, mainly in the northeast of the country. In a statement Wednesday, Buhari said Nigeria and its neighbors have “significantly destroyed” the fighting capacity of the insurgents.

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