According to the final statement of the International Monetary Fund (IMF) mission, the rising rate of inflation in Nigeria as well as the continued shortage of foreign currency are fueling speculation on the devaluation of the naira. To achieve a unified naira exchange rate, the global lender said Nigeria needed to dismantle “the various exchange rate windows at the CBN”. [Central Bank of Nigeria]”
The widening gap between the official exchange rate and the parallel market exchange rate
The International Monetary Fund (IMF) said Nigeria’s foreign currency shortages, rising inflation and the country’s limited debt-service capacity are fueling speculation over the devaluation of the naira. This, in turn, hinders “much-needed capital inflows, encourages outflows and limits private sector investment”.
In the global lender final staff statement of the 2022 Article IV mission, the IMF reiterated its call on the Nigerian financial authorities to consider moving “towards a unified and market-clearing exchange rate”. To achieve this, the IMF said on November 18 that the Central Bank of Nigeria (CBN) must abandon the multiple exchange rate system.
As reported by Bitcoin.com News, Nigeria officially ankles its currency at just under 450 naira for every dollar. However, in practice, many Nigerian businesses and individuals can only source the greenback and other global currencies from the parallel market where rates have recently hit an all-time low of N900: $1.
Additionally, the IMF’s final statement suggested that the CBN’s influence or control over the foreign exchange markets should be reduced.
“In the medium term, the CBN should withdraw from its role as the main foreign exchange intermediary, limiting interventions to smoothing market volatility and allowing banks to freely determine the rates of purchase and sale of foreign exchange”, explains the IMF press release.
Nigeria is falling short of its financial inclusion targets
Despite expressing concern over Nigeria’s exchange rate policy, the global lender’s final statement still praises the CBN for tightening liquidity and curbing ‘inflationary pressures by raising the Monetary Policy Rate (MPR) of 400 cumulative basis points”. A tighter monetary policy is often adopted by central banks when prices are rising too fast or when an economy is growing rapidly.
However, in the statement, the IMF mission insisted that the general conditions remain accommodative – Nigeria monetary policy rate (MPR) of 15.5% is lower than the inflation rate which peaked at 21.1% in October. The global lender’s mission also said the country’s budget financing as well as the central bank’s “directed lending programs” continue to spur strong monetary expansion.
Regarding financial inclusion, the IMF mission said that Nigeria “continues to fall short of its inclusion targets, particularly with regard to access to financial products”. However, the mission welcomed the CBN’s plan to launch a regulatory sandbox for fintech. He also urged authorities to “provide more targeted training on the use of financial products and expand e-naira to the unbanked population.”
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