The International Monetary Fund (IMF) has said the continued FX shortages, rising inflation, limited debt servicing capacity, and administrative restrictions on current transactions are fueling Naira devaluation speculations.
Recently at a Bloomberg poll, financial experts had predicted that the Central Bank of Nigeria (CBN) may further devalued the Naira after the 2023 general elections, while two of the 13 participants argued that the CBN would will continue with a gradual depreciation of the currency that started with the adoption of the more flexible NAFEX, also known as the investors and exporters exchange rate, last year.
“There will be a major devaluation either on President Muhammadu Buhari’s way out or in the first few months of the new administration,” Ikemesit Effiong, head of research at SBM Intelligence in Lagos, the nation’s commercial hub, said in an emailed response to questions.
Nigeria operates a multiple exchange regime dominated by a tightly controlled official rate, cutting off access to many businesses and individuals, which in turn drives demand to the unauthorized black market.
This has led the spread between the managed and parallel markets to significantly widen. The difference is almost 77 per cent.
However, the IMF in its 2022 Article IV Consultation concluding statement after an official staff visit to Nigeria last week reiterated that a unified and market-clearing exchange rate remains critical to enhancing the confidence of foreign investors in the economy.
The Bretton Wood institution added that administrative restrictions on current transactions fuel devaluation speculations and discourage capital inflow.
“These factors hinder much-needed capital inflows, encourage outflows and constrain private sector investment.
“In the medium term, the CBN should step back from its role as main FX intermediator, limiting interventions to smoothing market volatility and allowing banks to freely determine FX buy-sell rates.”
The IMF team also advised Nigerian authorities to consider adjusting tax rates to levels comparable to the average in the Economic Community of West African States (ECOWAS) as compliance improves.
