By Ifeanyi Onuba, Abuja

Apparently jolted by criticisms that have followed its recommendation that the naira is overvalued, the International Monetary Fund has said that it stands by its report on the Nigerian economy.

It, however, said that contrary to widely-held insinuations, it never at any time asked the Central Bank of Nigeria to devalue the naira.

The Fund on Thursday said that though the report made allusions to the overvaluation of the naira, it only recommended that there was the need for policy framework to be focussed on price stability.

The Country Chief and Senior Resident Representative in Nigeria, IMF, Mr. Scott Rogers, said in Abuja that the reference in its report on the need for greater exchange rate flexibility to prevent speculations in the foreign exchange market and mitigate external shocks did not in any way suggest a call for devaluation.

Asked if the Fund had been under pressure from the Federal Government to retract the earlier comment, Rogers said that the IMF was not under such pressure.

He said that the Fund stood by the content of the entire report and would not retract any portion of it.

He said, “The IMF is not recommending a devaluation of the naira. The question arises that clearly, there is a pressure on the naira and reserves have been falling.

“How has the central bank stabilised the value of the naira? It has done that by selling reserves; that works; but the problem with that is how long do we keep doing this? The central bank has to answer that question. They have started raising interest rates, which is what you need to do if you want to hold a given exchange rate and not lose reserves; you have got to raise interest rates.”

Continuing, Rogers said, “We did not in the report recommend the devaluation of the naira and we are not doing that now. I have been under no pressure from anybody to change the message.

“The finance ministry and the central bank are very candid, honest and very open; and the fact that we disagree on some issues should come as no surprise to anybody.

“The point is to reach a common understanding of the situation and hopefully to agree on what is the best strategy going forward. So, the message has not changed and I am not under any pressure to change our analysis and I am not withdrawing any statement. I support everything we said in that report.”

He, however, advised the Federal Government to reduce its dependence on oil revenue, saying that the more this was done, the more it would boost the country’s reserves, thus giving the apex bank more ability to reduce the pressure on the naira.

The Fund had said in a statement in Washington DC, United States, on February 17, that the CBN might need to increase benchmark interest rates further and weaken the currency to curb inflation, following increase in public spending.

It said, “Greater exchange rate stability would prevent one-way bets in the foreign exchange market and cushion external shocks. Nigeria’s strong external position and low debt helped mitigate the impact of the global financial crisis.

“However, a pro-cyclical fiscal stance and an accommodative monetary policy have resulted in high inflation and a loss in international reserves. Further monetary tightening may be needed should inflation pressures continue. Moving gradually toward an inflation-targeting regime, once the necessary institutional underpinnings are in place, will help anchor inflation expectations.”

 

Source: Punch