The Federal Government of Nigeria may have at last bowed to foreign pressures to further devalue her local currency, the Naira.
Finance Ministers of 15 African countries including Nigeria’s Minister of Finance, Mrs. Kemi Adeosun, have agreed on the need for oil exporting nations on the continent to adjust their currencies and embark on economic diversification. These are part of measures to address slowing growth and the difficult external environment, New Telegraph reports.
Few weeks ago, before President Muhammadu Buhari made the last United States trip on summit on climate change, the Government of the US has vowed it will press Nigeria in talks to adopt a more flexible foreign exchange rate to boost growth and investment in the country.
The ministers, who belong to the African Caucus of the African Consultative Group, stated this during the Group’s meeting yesterday at the Spring Meetings of the International Monetary Fund (IMF) and the World Bank. The decision to embrace currency adjustment comes against the background of repeated opposition by President Muhammadu Buhari to calls by the IMF and foreign investors for the naira to be devalued.
Nigeria, Africa’s biggest economy, is facing its worst crisis in decades, as the falling price of oil has slashed revenues, prompting the central bank to peg the currency and introduce curbs to protect foreign exchange reserves, which have fallen to 11- year lows.
But the African Finance Ministers pointed out that owing to the sharp drop in commodity prices and tighter financial conditions, growth in Africa is projected to decline to about 3 per cent in 2016, the lowest level in a long while. They said: “We concurred that the decline in commodity prices is likely to be long lasting, as the causes seem structural rather than temporary – including the ongoing rebalancing of demand in China and, in the case of oil, technological innovation that has enhanced supply. We also recognised that non-economic shocks such as weather- and security- related challenges, are posing downside risks to Africa’s economic prospects.
“Against this backdrop, we agreed that prompt fiscal adjustment is needed to safeguard macroeconomic stability and rebuild policy buffers across the region, especially in oil-exporting countries. We also concurred that, in pursuing these consolidation efforts, country authorities should aim at protecting priority expenditures, such as social expenditures and wellprioritised and efficient infrastructure spending, with a view to ensuring that longer-term development goals remain achievable.”
Besides, they agreed that, where feasible, the exchange rate should be allowed to adjust as needed to absorb shocks and improve competitiveness, with central banks’ interventions limited to mitigating disorderly market movements. In addition, the ministers emphasised the need for African countries to revitalise their economic diversification agenda as well as introducing structural reforms that will Chapimprove the business environment.
As the Group’s Chairman, Mr. Abdoulaye Bio-Tchané, puts it, “It is indispensable for African countries to adapt policies to the new environment and use all tools at their disposal – fiscal, monetary, exchange rate and structural policies to preserve hard-won macroeconomic stability, contain social impact, further strengthen our economies’ resilience to shocks, and support growth”.
The African Consultative Group comprises the IMF Governors of a subset of 15 African countries belonging to the African Caucus (African finance ministers and central bank governors) and Fund management. It was formed in 2007 to enhance the IMF’s policy dialogue with the African Caucus. The Group meets at the time of the Spring Meetings, while Fund Management meets with the full membership of the African Caucus at the time of the IMF/ World Bank Annual Meetings.