The IMF Agrees Diplomatically to Disagree on Nigeria's Exchange Rate Policy


Friday, April 08, 2016 8:52AM /FBNQuest Research

The IMF’s executive board has concluded the Article IV consultations for 2016 with the FGN, and released the customary press release to announce as such. The board’s discussions are generally based on a staff report, which is published once the member government gives its go-ahead and which tends to give a few revealing insights.

We can see from the press release that the Fund and the FGN have agreed to disagree on exchange-rate policy, and so continued the trend of the Soludo and Sanusi governorships. The FGN has signed several credit and monitoring agreements with the IMF but never drawn down funds.

The FGN ticks the boxes for the Fund in terms of its initiatives to enhance governance and transparency.

Its remarks about core infrastructure investment and non-oil revenues suggest some support from the Fund for, if not endorsement of, the expansionary 2016 budget.

The press release calls for an exchange rate that is both more flexible and more consistent with macroeconomic fundamentals. The call is likely to fall on deaf ears since the monetary policy committee’s latest communiqué on 22 March noted approvingly the rate’s stability.


There is also a call for the “unwinding” of exchange restrictions. The Fund might argue that the CBN circular of June 2015 on the 41 import items breaches the spirit of its Article VIII on current-account convertibility. In our view, the CBN could even add to the list of items rather than withdraw the circular, which it would describe as an administrative measure.


More broadly, the Fund has gently shifted its position on capital controls, which it may choose to support if they are temporary in nature and integrated within a package of macro policies. In the case of Iceland, such controls have been in place for six years. The political leadership in Nigeria, if not the monetary authorities, has said that the restrictions (measures) are short term expedients.


The IMF now sees GDP growth of just 2.3% this year, rising to 3.5% in 2017. For the non-oil economy, the figures are 3.1% and 3.5% respectively. This does not allow for much impact from the FGN’s capital spending plans this year and next.


It forecasts the general government deficit (for all three tiers) at 4.4% of GDP in 2016, compared with its estimate as high as 3.7% last year. The figures are not to be confused with those for the FGN, which is capped at 3.0% by the Fiscal Responsibility Act.

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