The International Monetary Fund on Friday released its country report for Nigeria with an assertion that the country’s foreign exchange policy is having negative impact on many businesses.
It insisted in the report that the naira is currently overvalued, noting that if something urgent is not done, it could result in further delay in the much needed foreign direct investments.
In the IMF’s 88-page report, the agency said a combination of wide fiscal deficits and accommodative monetary policy could further widen the current account deficit.
This, it stated, is capable of putting more pressure on the country’s exchange rate and external reserves.
It said the outcome of the findings from the report had been communicated to the relevant authorities in Nigeria.
The report stated that economic growth in 2016 is expected to decline further to 2.3 per cent with non-oil sector growth projected to slow from 3.6 per cent in 2015 to 3.1 per cent in 2016 before recovering to 3.5 per cent in 2017 based on the results of policies under implementation, particularly in the oil sector as well as an improvement in the terms of trade.
The report said, “Growth is expected to slow further in 2016 before a modest recovery over the medium term, but with significant downside risks and reduced buffers.
“Some components of the policy package to adjust to the permanent terms of trade shock are now in place, but with little improvement expected in external conditions and large policy distortions remaining, growth is likely to remain well below historical averages.
“There are significant risks to this outlook: uncertainty on the path of oil prices and oil production; the impact of reforms to raise non-oil revenues; late disbursement of external financing or less-than-desired access to international markets; a further deterioration in the fiscal position of state and local governments; and disruption to private sector activity due to exchange restrictions.
“Meeting fiscal slippages through additional domestic borrowing could raise the Federal Government’s interest payment-to-revenue ratio to an unsustainable level and crowd out lending to the private sector.
“The combination of wide fiscal deficits and accommodative monetary policy with an overvalued exchange rate could widen the current account deficit further, add pressure to the exchange rate and international reserves, and result in further delays in much needed foreign capital inflows and investment.”
In order to address the challenges facing the economy, the Fund recommended an adjustment in macroeconomic policies.
The polices, it added, would be anchored on safeguarding fiscal sustainability; reducing external imbalances, including real exchange rate realignment; enhancing resilience and further improving the efficiency of the banking sector; and implementing structural reforms for sustained and inclusive growth.
The report stated further that strengthening of the regulatory and supervisory frameworks would help improve resilience even as financial sector soundness indicators remain favourable.
