According to the International Monetary Fund, the naira is now under pressure, and Nigeria is free to seek a loan from the Fund to stabilize the currency if it deems it a viable alternative.
However, the Washington-based lender highlighted that recent exchange liberalization and other initiatives made by Nigerian authorities were appropriate.
It also backed Olayemi Cardoso’s Central Bank of Nigeria’s move last week to lift an eight-year foreign exchange embargo on cement, rice, poultry products, and 40 other items. The previous CBN administration imposed the forex embargo in 2015.
The announcement was made during the World Bank Group/International Monetary Fund meeting in Marrakech, Morocco.
According to the IMF, inflation in Nigeria remained high in August, at 26%, while the naira remained under pressure. The local currency, which plunged from around 450/dollar to an average of 760/dollar amid President Bola Tinubu’s exchange reforms, has continued to fall in the parallel market, On Thursday, October 12, 2023, the local currency fell to 1045 per dollar.While reaffirming the need to tighten monetary policy by hiking the Monetary Policy Rate and mopping up excess naira liquidity, the bank stated that additional clarity on the Central Bank of Nigeria’s dollar liabilities might boost foreign exchange market confidence.
According to A JP Morgan analysis, the Central Bank of Nigeria’s forward contract liabilities are $6.8 billion, although stakeholders believe the figure could be higher
“As every IMF member country, Nigeria can seek IMF financing if they see this as helpful to address external imbalances,” it stated of the potential of a currency support loan. The Nigerian government have not asked the IMF for assistance.” Meanwhile, the IMF has stated that it believes the new CBN governor, Cardoso, and the incoming Minister of Finance and Coordinating Minister of the Economy, Wale Edun, have the ability to make sound economic judgments. The CBN governor stated that the new leadership team would evaluate the central bank’s foreign exchange market rules, corporate governance standards, and monetary policies in order to reposition the apex bank to meet its fundamental missions.
He said that the newly appointed team members, who started working at the bank full time a few weeks ago after being confirmed by the National Assembly, were already working on a thorough evaluation of the difficulties the central bank was facing.
As part of an extensive reform program to restructure the bank as a catalyst for economic growth and development, he claims that the ongoing evaluation of the bank will result in the adjustment or elimination of some policies.
Together with suggesting solutions to deal with inflation and price stability concerns, the new central governor also intends to set limits on the CBN’s fiscal side actions.
“The new Central Bank leadership team needs to thoroughly review these problem statements to ascertain what mechanisms are currently functioning, what can be adjusted or eliminated, and what new tools need to be introduced,” Cardoso stated.
“The economic policy proposals of the administration identify a set of fiscal reforms and growth targets that will achieve $1tn GDP within eight years,” he remarked when asked how the CBN might be refocused to assist economic growth.
Examining a few BRICS and MINT nations that have sizable populations and comparable developmental traits to Nigeria, it’s intriguing to see macroeconomic indexes that cite Nigeria’s economic development, taking into account the diligent execution of the suggested economic reforms. These characteristics include substantial foreign reserves, moderate inflation, and the ability to quickly recover from a cyclical economic crisis in economies larger than $1 trillion.
