Naira Depreciation Is Not Necessarily Bad — IMF Says
The International Monetary Fund (IMF) said yesterday that the Naira’s depreciation should not automatically be seen as a negative occurrence.
The Financial Counsellor and Director of Monetary and Capital Markets of the Fund, Mr. Tobias Adrian, stated this while fielding questions at the Global Fiscal Sustainability Report press briefing at the ongoing Annual Meetings of the World Bank and the IMF in Washington DC, USA.
Asked what policy measures the Fund would advise the Nigerian to adopt to shore up the value of the Naira that has suffered a major devaluation in the last two years, the Director said, “In terms of the Nigerian economy, of course, you know exchange rates are important, are important buffers to adjust the domestic economy relative to shocks.
”So, you know, a depreciating exchange rate is not necessarily a bad thing. It may actually be a good thing to restore equilibrium.
“And we have indeed seen in Nigeria, you know, many steps to strengthen policy frameworks, such as on the monetary policy side. And you know, we generally do recommend moving towards more flexible exchange rates.
“And yeah, in addition to monetary policy actions, revenue collection has strengthened in Nigeria, and transparency in terms of FX reserve positions have improved.
”I think all of this has contributed to lower inflation from more than 30% last year to 23% this year, as well as improved FX reserve positions in Nigeria.
”So the direction of travel appears to be positive.”
Mr. Adrian noted however, that Sub-Saharan Africa in general was facing and continue to face headwinds.
He said, “While growth has been pretty strong during this period where financial conditions are easy, capital flows are resuming, it is also possible that the previous capital flow surge and then retracement cycles that we have seen before could happen, and when that happens, it would expose some of these economies with vulnerabilities, particularly when foreign investments were to retrace.
”So, it is important for countries to continue to improve the fundamentals on the fiscal and monetary policy side, but also in terms of developing more structural policies like revenue mobilization, as Nigeria is trying to do- debt management and hopefully also support from the international community.”