IMF expresses worry over return of fuel subsidies in Nigeria

 

The International Monetary Fund (IMF) has expressed concerns over recent moves by the Nigerian government to reinstate the fuel subsidy regime.

In addition, the international agency has advised the President Muhammadu Buhari-led government to continue efforts to unify exchange rates.

The advice came in the wake of virtual meetings held between officials of the IMF and representatives of the Nigerian government. Earlier in the year, the FG had declared that it had ended the opaque fuel subsidy regime; which many analysts had berated as one encouraging rent-seeking and other forms of corruption.

However, the government has recently appeared to gradually embarked on a reinstatement of fuel subsidies; a development the IMF had condemned in a statement after its meeting with the Nigerian authorities.

“The mission (IMF team) expressed its concern with the resurgence of fuel subsidies. The mission recommended maintaining the momentum toward fully unifying all exchange rate windows and establishing a market-clearing exchange rate,” the IMF statement read in part.

Nigeria previously had multiple naira rates which came into force in 2016. Recently, the Central Bank of Nigeria had devalued the naira in a bid to bring convergence with the NAFEX rate; which is a market-determined rate for investors and exporters.

Also, the IMF had made clear the benefits of having a unified rate; noting that it would help remove a lot of obstacles hobbling the Nigerian economy.

‘‘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.

‘‘Sustained premiums in the parallel market and unmet foreign exchange demand indicate the need for further adjustment in the exchange rate to reduce the gap between supply and demand. An appropriately valued exchange rate and a clear exchange rate policy would also help instil 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 had disclosed on its website.

Meanwhile, the Nigerian banking industry received some kudos from the IMF; with the agency declaring it well-capitalised and with a contained level of non-performing loans.

The submission by the IMF comes in the wake of a similar advice by the World Bank earlier this week.

The World Bank had faulted the CBN’s management of the foreign exchange regime. Specifically, it held that the poor management of the forex regime had reduced access to foreign exchange; a development it said had negatively impacted investor confidence and investment appetite.