IMF urges Nigeria to drop exchange controls

As Nigeria begins to emerge from its oil-induced recession, the IMF argues that macroeconomic policy changes are “urgently needed”

Dependence on oil crippled Nigeria's economy during the recent price crash. Diversification measures are now in place 

On March 30, the IMF released its 2017 Article IV Consultation with Nigeria, which argued that policy changes are “urgently needed” to restore confidence and foster recovery in the country. Last year, low global oil prices dragged the Nigerian economy into its first recession for a quarter of a century. A heavy dependence on oil receipts also substantially dented government revenues, causing the interest payments-to-revenue ratio to jump to 66 percent. The IMF : “Under unchanged policies, the outlook remains challenging.” Furthermore, the IMF predicted that without policy action growth would see just a moderate uptick of 0.8 percent in 2017.

In a bid to move away from a long-running oil dependence, Nigerian authorities have recently adopted an economic recovery and growth plan, which focuses on economic diversification driven by the private sector. Priorities of the plan include ensuring food security through agriculture-related manufacturing, promoting industrialisation, and achieving sufficiency in energy. While the plan was well received by the IMF, the board emphasised that without stronger policies its objectives may not be achieved.

The IMF predicted that without policy action growth would see just a moderate uptick of 0.8 percent in 2017

In June 2016, authorities allowed the exchange rate to float against the dollar, with the value of the naira dropping by a third as a result. While commending this move, the IMF criticised the foreign exchange restrictions that remain in place, stating: “The market continues to be characterised by significant distortions.” According to the IMF, the current approach is supporting an increasingly overvalued exchange rate, which risks triggering a deterioration in the non-oil trade balance.

The fund also encouraged fiscal consolidation in order to reduce the federal government interest payments-to-revenue ratio to sustainable levels. More specifically, it stressed the importance of containing deficits through greater transparency. Increasing non-oil revenue was touted as a priority, with recommendations that authorities raise VAT and excise rates, strengthen compliance, and close loopholes and exemptions.

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