The International Monetary Fund (IMF) has described as incorrect, media reports earlier in the week that it projected that the Naira may exchange at N2,081/$1 in the official foreign exchange market in 2024.
In a statement made available to The Shield Online on Friday, and signed by Christian Ebeke,
Resident Representative for Nigeria, the IMF said “Recent articles in the Nigerian press that quote a specific naira/US dollar exchange rate projection by the IMF are incorrect. The IMF does not publish exchange rate forecasts.”
The statement added that “The articles seem to draw on an IMF report prepared in late 2023 that was recently published. The report includes a hypothetical downside scenario exercise that stress tests key macroeconomic variables, mainly in response to hypothetical adverse exogenous shocks.”
Many Nigerian news outlets earlier in the week quoted the IMF as warning that the country’s exchange rate may depreciate further by about 35 percent this year and contribute to a sharp rise in inflation, peaking at 44 per cent before the monetary policy could eventually arrest the situation through tightening.
The fund disclosed this in its February 2024 Post–Financing Assessment and Staff Report.
It noted that monetary policy is currently insufficiently tightened to bring inflation below 20 per cent while pressures on the Naira persist.
The report noted that amid the absence of local production and the recent liberalisation of commodity imports, the exchange rate would likely depreciate further.
IMF said Nigeria had been hit by another adverse climate shock in early 2024 – following severe flooding in late 2022- that exacerbated the current weakness in agriculture and led to a decline in output and a surge in food prices.
It however pointed out that the country would benefit from developing a comprehensive macroeconomic and growth strategy, in collaboration and with support from development partners.
This, it said, would include aggressive monetary tightening, fiscal adjustment to restore macroeconomic stability, and putting in place climate adaptation measures.
It stressed that domestic demand had weakened due to the steep fall in real incomes – as investments in the oil sector would likely stall due to rising costs, and production declines.
The fund further predicted that the country’s growth could fall to zero in 2024 and only slowly recover to two per cent in 2028.
It said the uncertainty over Nigeria’s net international reserves level poses additional risks, as would exogenous further shocks that impact external stability, poverty, and food insecurity.
The publication further stated that the fiscal deficit could increase above six per cent of GDP in 2024 and 2025, driven in part by increased transfers to quell social unrest (one per cent of GDP) and a rise in the implicit fuel subsidy.
IMF Predicted that, “With limited external financing options and higher expenditures, there is increasing use of CBN and domestic financing. The authorities implement expenditure measures in 2026, for example, phasing out the implicit fuel subsidy but the debt to GDP ratio still rises by six percentage points above the baseline by 2028.
“The spike in inflation and rise in uncertainty trigger portfolio outflows, and Nigeria is unable to access Eurobond financing. Reserves decline to $17 billion in 2025. Obligations due under the RFI peak at over eight per cent of officially reported reserves.
“Nigeria would be able to repay the fund, even in the downside scenario. This assumes that the authorities continue to prioritise external debt service. However, debt service would compete directly with urgent humanitarian needs to tackle rising poverty and food insecurity that would need to be prioritised.
“Therefore, even assuming the authorities reserve the remaining SDR allocation for RFI repayments, trade-offs could be severe.
“The uncertainty over Nigeria’s net international reserves level poses additional risks, as would exogenous further shocks that impact external stability, poverty, and food insecurity.”
