Forex: IMF Seeks Unified Exchange Rate Regime

•  Welcomes CBN’s FX intervention measures  Apex bank injects $396 to boost retail SMIS

By Kunle Aderinokun, Obinna Chima and Funke Olaode in Washington DC, Ndubuisi Francis in Abuja

The International Monetary Fund (IMF) has welcomed the stability recorded in Nigeria’s foreign exchange market, just as it urged the Central Bank of Nigeria (CBN) to continue to push for a unified exchange rate regime.

In a related development, the Minister of Finance, Kemi Adeosun, yesterday said that at 20 per cent Debt to Gross Domestic Product (GDP), Nigeria’s foreign debt level does not pose any risk to its financial stability and economy.

The Director of African Department, IMF, Mr. Abebe Aemro Selassie, spoke yesterday on Nigeria’s forex policy at a press briefing on developments in the region at the on-going IMF-World Bank spring meetings in Washington DC.

Selassie noted that compared to where things were a year ago, inflation in Nigeria had continued to accelerate, dropping to 13.34 per cent as of March 2018, compared with about 19 per cent last year.

“Of course, things have improved significantly in Nigeria,” he said while responding to a THISDAY question.

Selassie added: “This was due to the reforms that have been undertaken in the exchange rate regime as well as capital inflows due to the recovery in oil prices and the uncertainty ameliorating.

“Inflation has also been decelerated. These are all welcome trends, but I do think that there remains a need to move towards having a more simplified exchange rate regime moving forward. That would also be important for the conduct of monetary policy.

Selassie also welcomed the recently signed continental free trade agreement (CFTA) by some African leaders in Kigali, Rwanda, last month, saying it holds a lot of promise for the region.

Responding to a question on the likely effects on countries like Nigeria that opted out of the agreement, the IMF official said: “Trade agreements always have difficult issues and more domestic issues for and against but overall, we think that the CFTA is very important initiative which many African countries will benefit from “

He stressed the need to increase revenue mobilisation in the country, noting that the country should target a 10 per cent tax to GDP ratio: “Why this is necessary is to be able to address the tremendous investment needs in education, health and many other priorities that the government has. So, it’s not really revenue collection just for revenue collection sake but the development objectives that the government itself has laid out.

“The challenge in Nigeria has been a relatively small source of revenue.  There has been less emphasis on tax collection. So, enhancing tax collection is important.”

CBN Injects $396.18m to Boost Retail SMIS

Meanwhile, in the continuing effort to guarantee liquidity in the foreign exchange market (FX), the Central Bank of Nigeria (CBN) yesterday injected $396.18 million into the retail Secondary Market Intervention Sales (SMIS) segment  of the foreign exchange market.

According to figures obtained from the CBNs, the released sum is meant to meet obligations in the agricultural, airlines, petroleum products and raw materials and machinery sectors.

Confirming the figures, the Bank’s Acting Director, Corporate Communications Department, Isaac Okorafor said that interventions by the CBN in both the retail and wholesale sectors of the FX market were targeted primarily at ensuring liquidity in the market as well as encouraging production and trade, particularly now that the focus is on the promotion of local content. 

Okorafor further explained that with the countrys reserves nearing $50 billion, the CBN was even more determined to sustain the gains recorded through the various policy options the Bank took in the course of stemming the depletion of the external reserves and steering Nigeria out of recession. 

Beyond ensuring liquidity in the inter-bank sector of the market, he said the CBN was committed to supporting efforts aimed growing the economy and further diversifying it away from oil. 

Despite rates closing at N362/$1 yesterday, Okorafor, insisted that the market would remain stable and that the CBN would ensure it maintains the countrys external reserves in order to safeguard the international value of the Naira. 

The Central Bank of Nigeria in its last SMIS on March 23, 2018, intervened with $339.89, while also intervening in the inter-bank forex market to the tune of $210,000,000, comprising $100 million for the wholesale segment and $55 million for both the Small and Medium Enterprises (SMEs) and invisibles segment on April 18, 2018.