BY WILLIAM ANAEBONAM
The Federal Government is facing a fresh pressure from the International Monetary Fund over some of its economic policies, including the foreign exchange regime.
The IMF is calling for a unified exchange rate in addition to removal of subsidy payment on petrol, which the government has repeatedly denied.
During a virtual meeting with key government officials, recently, the development agency, observed subsisting subsidy payments and called for an end to it.
The IMF expressed concern over the resurgence of fuel subsidies and recommended maintaining the momentum toward fully unifying all exchange rate windows and establishing a market-clearing exchange rate.
On the country’s operating exchange rate, the IMF, said that the current system creates uncertainties for the private sector because of multiple exchange rates and non-transparent rules for forex allocations, and advised that unifying the various rates into one market-clearing rate would establish policy credibility.
‘‘Sustained premiums in the parallel market and unmet foreign exchange demand indicate the need for further adjustment in the exchange rate to reduce the gap between supply and demand. An appropriately valued exchange rate and a clear exchange rate policy would also help instill confidence and private sector-led recovery.
‘‘Policy clarity is also important to attract larger capital inflows, including foreign direct investments; which have dropped significantly in recent years and successful diversification,” IMF posited.
The IMF mission to Nigeria observed that the Nigerian economy has started to gradually recover from the negative effects of the COVID-19 pandemic.
Jesmin Rahman, team leader of the IMF mission to Nigeria, who led the staff virtual meetings with Nigerian authorities, disclosed the IMF’s observation in a statement in Washington D. C.
Rahman commended the FG’s measures to contain the transmission of Covid-19 in Nigeria, including the ongoing vaccination programme under the COVAX initiative.
She also supported the FG’s efforts to acquire additional doses from countries with surplus stocks.
She said that following sharp output contractions in the second and third quarters, GDP growth turned positive in Q4 2020 and growth reached 0.5 per cent (year-on-year) in Q1 2021.
This, she said, was supported by agriculture and services sectors.
Recall that the Central Bank Governor, Godwin Emefiele, had said that efforts were being made to achieve a common exchange rate for the country.
This can only be effective if other policy options are in place.
Other experts, including Mustafa Chike Obi, former Managing Director/Chief Executive Officer of the Asset Management Corporation of Nigeria had also frowned at the multiple exchange rate for different sectors of the economy.
Nevertheless, the IMF observed that the employment level continues to fall dramatically and together with other socio-economic indicators, is far below pre-pandemic levels.
“Inflation slightly decelerated in May but remained elevated at 17.9 per cent, owing to high food price inflation,” Rahman noted.
She, however, said that with the recovery in oil prices and remittance flows, the strong pressures on the balance of payments had somewhat abated.
She added that although imports were rebounding faster than exports, foreign investor appetite remained subdued resulting in continued foreign exchange shortage.
According to her, inflation is expected to remain elevated in 2021, but likely to decelerate in the second half of the year to about 15.5 per cent, following the removal of border controls and the elimination of base effects from elevated food price levels.
However, the cost of food was still way above the reach of the poor with a bag of rice sold for as much as N25,000 Naira in the open markets.
She said tax revenue collections were gradually recovering but, with fuel subsidies resurfacing, additional spending for Covid-19 vaccines, and addressing security challenges, the fiscal deficit of the government was expected to remain elevated at 5.5 per cent of GDP.
However, the president of Nigeria Labour Congress, Ayuba Wabba has vowed to resist any attempt at fuel price increase.
Wabba warned that jerking-up fuel prices was capable of wiping workers’ wages and spreading inflation across board.
