The chances of Nigeria securing over $1.4 billion in international loans may have been thrown into question as the International Monetary Fund (IMF) is expected to issue an unflattering report on the Federal Government’s economic policies next week.
According to a report seen by Reuters, the IMF is expected to warn Nigeria that its economy needs urgent reform and will also urge the government to introduce immediate changes to its exchange rate policy as the forex measures recently introduced by the Central Bank of Nigeria (CBN) are not enough to drag the economy out of recession.
The news agency quoted the IMF as telling the Federal government in the 68-page report that: “Much more needs to be done… and further actions are urgently needed!” An online news portal, Reuters said the report which was written after a final meeting between IMF representatives and top government officials in Abuja was from the Fund’s Acting Secretary and addressed to members of its executive board and would form part of the IMF’s verdict expected on March 29, although Nigeria can request alterations.
Financial experts said the IMF report could delay efforts by Nigeria to secure the much needed loans from the World Bank and the African Development Bank (AfDB) as it would send an important signal to institutional lenders.
The World Bank has been in talks with Nigeria for a loan of at least $1 billion for more than a year and the AfDB has $400 million on offer, but discussions have stalled over economic reforms.
Nigeria is seeking the funding for infrastructure investment and to help plug an expected record deficit in this year’s budget as it boosts spending to try to end a recession.
The IMF said that if Nigeria did not remove foreign exchange restrictions and unify the exchange rates, it risked “further deterioration in (forex) reserves” and “a disorderly exchange rate depreciation”.
The report said Nigeria should also tackle its overdependence on oil, low government revenues, a large infrastructure deficit, a rising debt service and double-digit inflation.
Nigeria has not asked the IMF for fiscal support. An IMF spokeswoman declined to comment. A spokesman for the presidency directed inquiries to the ministries of finance and budget and national planning.
The finance ministry and CBN did not respond to repeated attempts to seek comment. A budget and planning ministry spokesman declined to comment.
Earlier this month, Nigeria released an Economic Recovery and Growth Plan (ERGP) for 2017 to 2020 calling for a market-determined exchange rate. But analysts argue it offers few concrete steps.
The ERGP “is more optimistic on growth than (IMF) staff… does not explicitly call for tighter monetary and fiscal policy in the near term, and assumes no immediate change in exchange rate policy all of which are essential to reduce vulnerabilities and increase investors’ interest,” said the IMF. Delays in adopting these policies increase vulnerabilities and risk reforms being politicised ahead of the 2019 elections, the IMF said. Nigeria’s woes go beyond its economy, said the report, piling additional challenges onto the government.
The northeast is in the throes of a humanitarian crisis caused by the Boko Haram Islamist insurgency, which is threatening millions with starvation.
Adoption of a fully flexible exchange rate would likely see the naira, which is propped up by the central bank but trades around 30 percent weaker on the parallel market, plummet in value.
The report said Nigeria should articulate a sustainable fiscal policy and adopt structural reforms to diversify the economy away from its dependence on oil and promote competitiveness.
“The outlook is challenging, with growth expected to remain flat and macroeconomic imbalances to persist,” it said. However, reacting to the IMF report, a financial expert, Dr. David Aheruvoh, urged the government to ignore the Fund.
He said: “The government should show the IMF its roadmap and tell the Fund to leave us alone. Monetary policy cannot be tightened any further in an already deteriorating economy. Also the naira cannot be devalued because it will result in more inflation.”
Similarly, another financial expert, Dr Richard Mayungbe, faulted the IMF on its call for a devaluation of the naira.