The International Monetary Fund (IMF) says efforts to save the naira by rationing foreign exchange have gradually crumbled.
The IMF also said the challenges around foreign exchange in Nigeria have pushed inflation to double digits in Africa’s largest economy.
This is coming a year after Christine Lagarde, IMF managing director, met with the main players in the Nigerian economy, including Kemi Adeosun, minister of finance; Godwin Emefiele, governor of the Central Bank of Nigeria (CBN) and President Muhammadu Buhari.
Lagarde, at the time, called for subsidy removal and devaluation of the naira — both of which have been done.
In its policy paper on macroeconomic developments and prospects in low-income developing countries (LIDCs), unveiled on Thursday, the IMF said the failures in the economy were due to “delayed/poorly managed policy adjustment”.
“There were sharp movements in currencies across many LIDCs during 2015. Further sizeable depreciations were recorded in 2016 in commodity exporters under stress,” the paper read.
IMF said this includes “Mongolia, where reserve levels have been significantly eroded, and Nigeria, where efforts to support the naira through foreign exchange rationing have gradually crumbled”.
“Inflation has risen to troubling levels in a handful of cases, concentrated in sub-Saharan Africa. Among commodity exporters, large exchange rate depreciations were a key contributor in Mozambique, Nigeria, and Zambia”.
The IMF blamed the failures on lack of business confidence in conflict zones and delay in policy adjustment by the country’s leadership.
“Domestic policy failures cited include delayed/poorly managed policy adjustment to lower commodity prices — as in Nigeria, where foreign exchange rationing adversely affected debt service capacity of many corporates.
“Nigeria (is) affected by Boko Haram-led attacks in the north and disruptions to oil production in the Niger Delta region. Aside from direct damage and increased security outlays, conflict situations undermine business confidence, investment, and tourism.”
The fund also said Nigeria’s financial developments affected neighbouring countries like Chad, which also plunged into a recession, and Benin.
“External developments have predictably played an important causal role in the emergence of financial sector stress, through falling commodity prices, declining remittances, and adverse spillovers from neighbors — as in the impact of Nigeria’s economic difficulties on Benin.
“That said, teams’ assessments indicate that poor macroeconomic policies and weak supervision have also played a significant contributory role.”