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IMF tasks FG on Naira FX rate stability, sustainable growth

The International Monetary Fund (IMF) has advised the Federal Government on the need to adopt hawkish fiscal and monetary policies in order to stabilize exchange rate of the Naira in the foreign exchange market and by implication, boost the nation’s economic growth

The IMF Mission Chief for Nigeria, Ari Aisen, gave this advice at the Arbiterz conference with the theme ‘The Naira: Paths to Institutional Reforms and Accelerated Growth’ held last Thursday in Lagos

According to the banking expert, “there needs to be additional macroeconomic tightening of monetary and fiscal policies to be able to give a chance to the naira and stability to the economy on a more durable footing.

Noting that the short-term challenges are undeniable, the IMF chief expressed optimism that “but with renewed confidence in the medium term, the economy can enjoy a different environment for investment, with more credibility, more visibility and then be able to create more jobs and Nigeria can see the other side.”

Aisen, who commended the government of President Bola Tinubu on the liberalization of the local FX market, projected that the current hardships associated with the implementation would reduce in the long run with effective macroeconomic policies.

He said: “The supply of foreign exchange might take a bit of time because there’s too many naira running after the FX, which is a recipe for depreciation. There needs to be an inflow of Fx,” he said.

The IMF Mission Chief said the interest rates of 18.75% didn’t fully reflect market rates based on lower rates in the investment space, particularly based on current rates on debt instruments such as treasury bills.

He expressed concern that the prevailing disparity could lead to reduced foreign inflows and limited savings among Nigerians, adding that the fiscal policies are loose, despite the fiscal savings from the petrol subsidy removal as debts remained still high.

Aisen clarified: “What we see is the CBN continues to finance the government through the ways and means, this is an additional injection of liquidity into the system, if not mopped up will contribute to lowering the interest rate in the economy.

“Transitory, we believe that policies should be tighter to support the naira as we move forward. The idea will be that if there’s a shorter course to be paid for the economy to stabilize after the transition period the economy can by recouping confidence in the medium term, maybe 18 months more or less which is hard because the population has been suffering quite a bit and hardships are high for a long period of time”, he added.

The banker stressed the need for the government to also introduce social policies to protect the vulnerable from the surging prices in the economy and other measures required to stabilize the economy.

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