The International Monetary Fund (IMF) in its latest economic assessment of Nigeria, Africa’s largest economy, has recommended exchange rate reforms to establish a unified rate and allow greater flexibility, while calling for strengthened efforts to increase government revenues.
The IMF emphasized the need for the Government to raise more revenues in order to ensure a sustainable fiscal position, as Nigeria has one of the lowest revenue levels as a share of GDP worldwide.
“The current system creates uncertainties for the private sector because of multiple exchange rates and non-transparent rules for foreign exchange allocation. Unifying the various rates into one market-clearing rate would establish policy credibility.
“… An appropriately valued exchange rate and a clear exchange rate policy would also help instill confidence and private sector-led recovery. Policy clarity is also important to attract larger capital inflows, including foreign direct investments, which have dropped significantly in recent years and successful diversification,” the IMF said in its report.
Nigeria’s movement toward a single exchange rate will help instill business confidence and boost a private sector-led recovery. Find out more in our latest #IMFCountryFocus https://t.co/h6uU5XEwnY pic.twitter.com/zDSjHp1Sjk
— IMF (@IMFNews) February 9, 2021
According to the IMF, a large share of revenues is spent on the country’s public debt service payments, leaving insufficient fiscal space for critical social and infrastructure spending and to cushion an economic downturn. It, therefore, advised, “In this context, mobilizing revenues through efficiency-enhancing and progressive measures is a top near-term priority.”
The IMF observed that Nigeria needs economic diversification, which requires economic trade openness and competitive discipline.
Embracing more open trade and competition policies, the IMF says, would help diversify the economy and reinvigorate growth, particularly as the African Continental Free Trade Area takes effect.
“Successful economic diversification requires trade openness and competitive discipline. The experience of Malaysia, Indonesia, and to some extent India has shown that a shift toward export-oriented industrialization can boost GDP.
“The limited gains from inward-oriented policies in terms of creating jobs and improving living standards suggest that Nigeria needs to change course. To accommodate a growing number of young people entering the labor market, Nigeria will need to create at least 5 million new jobs each year over the next decade”, says IMF in its latest economic assessment.
Amaka E. Nliam
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