IMF calls for exchange rate reforms in Nigeria

The staff of the International Monetary Fund (IMF), who just completed the 2020 Article IV virtual mission to Nigeria, have called for exchange rate reforms in Nigeria.

In their report, they are calling for major policy adjustments that could embrace broad market and exchange rate reforms, saying that reforms are needed to address recurrent balance of payments (BOP) pressures and raise the medium-term growth path in Nigeria.

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According to the mission, a durable solution to Nigeria’s recurrent BOP problems requires recalibrating exchange rate policies to reduce BOP risks, instil market confidence and facilitate private sector planning. It recommended a multi-step transition to a fully unified exchange rate regime, with a market-based flexible exchange rate.

Considering revenue mobilisation, the mission said: “Significant revenue mobilization – through tax policy and administration improvements – is required to create space for higher social spending and reduce fiscal risks and debt vulnerabilities.

“With high poverty rates and only a gradual recovery in prospect, revenue mobilisation will need to rely initially on progressive and efficiency-enhancing measures, with higher VAT and excise rates awaiting until stronger economic recovery takes root.

“The mission welcomed this year’s reduced dependence on central bank financing of the budget and recommended its complete removal in the medium term. This could be accomplished by improving budget planning and public finance management practices to allow for flexible financing from domestic markets and better integration of cash and debt management.”