IMF supports decision to float the naira

The International Monetary Fund has welcomed the decision by Nigeria’s central bank to abandon its currency peg and adopt a flexible exchange rate policy, saying this was important to reduce fiscal and external imbalances.

IMF spokesman Gerry Rice told newsmen that the Fund wanted to see how effectively the naira exchange market functions once the new float system is put into effect next Monday.

“I think the announcement to revise the guidelines for the operation of the Nigerian interbank foreign exchange market is an important and welcome step,” Rice told reporters. “It will provide greater flexibility in that market, the foreign exchange market.”

Senior IMF officials, including Managing Director Christine Lagarde, have urged Nigerian officials to allow the naira to fall to absorb some of the shock to the economy from a plunge in oil prices and revenues.

OPEC member Nigeria is a major oil producer. IMF officials have said that Nigeria has not requested IMF financial assistance, but has been in consultation with the Fund on dealing with budget shortfalls.

“As we have said before, a significant macroeconomic adjustment that Nigeria urgently needs to eliminate existing imbalances and support the competitiveness of the economy is best achieved through a credible package of policies involving fiscal discipline, monetary tightening, a flexible exchange rate regime and structural reform,” Rice said.

“Allowing the exchange rate to better reflect market forces is an integral part of that.”

Reuters/UO