Business
IMF tasks Nigerian government on Naira defense
The International Monetary Fund (IMF) Head, Emerging Economies Regional Studies Division, European Department, Anna Ilyina has called on the Nigerian Government to defend the country’s currency against the outflow of Foreign Portfolio Investment (FPI).
Ilyina who made the call at a summit in Indonesia said the outflow of foreign portfolio investment has been triggered by rising interest rate in the United States and other advanced countries.
While commenting on the impact of rising interest rate in Nigeria and other emerging economies, the IMF Head recommended flexible exchange rate and judicious use of the nation’s external reserves as the appropriate policy response to the monetary policy normalisation.
“In terms of policy responses, of course, a flexible exchange rate is the first line of defence. Allowing the exchange rate to act as an external measure is healthy to adjust to the external environment. Of course, forex intervention might make sense in certain circumstances. But then, one has to consider the growth in fundamentals, the level of reserves and other policy tools that might be more appropriate in country-specific circumstances.
“Another thing that I want to mention is that given that we are still at the early stage of monetary policy normalisation in advanced economies. So, one can expect global external conditions and external balance conditions to remain challenging going forward,” he said.
Ilyina lamented that Nigeria and other emerging market nations have come under pressure since April 2018. According to her, a combination of factors has basically affected emerging market since then.
“It started with sharp appreciation in US dollar in the context of rising US interest rates and of course emerging markets are very sensitive to changes in external balancing.”
Speaking of Nigeria, Ilyina said there is one important driver that always affect the country’s economic condition which she said is oil. Ilyina added that Nigeria being an oil exporter is always very sensitive to changes in oil prices.
Nigeria’s local currency, the Naira has continued to remain stable in the foreign exchange (forex) market, despite the fact that the nation’s external reserves recorded the tenth weekly decline in the third week of September 2018 after its July high.
The reserves, which stood at $47.79 billion as at July 5, dropped to $45.23 billion as at September 13, the lowest level in more than five months.
