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IMF urges CBN to adopt well‑designed FX intervention framework

The International Monetary Fund (IMF) on Thursday urged the Central Bank of Nigeria (CBN) to adopt a well-designed foreign exchange intervention framework to ensure the stability of the currency.

The Washington-based Fund applauded the removal of foreign exchange market distortions and encouraged the authorities to continue improving the functioning of the FX market.

This was disclosed by the Fund in its concluded Article IV consultation with Nigeria. The IMF directors commended the Nigerian authorities’ actions to rein in inflation and restore market confidence. They stressed the importance of keeping a tight monetary policy stance to put inflation on a downward path, maintaining exchange rate flexibility, and building reserves.

Read also: IMF urges caution over proposed amendment of CBN Act

Gross international reserves declined in 2023 amid persistent capital outflow pressures. The naira depreciated sharply after the unification of the official foreign exchange windows in June 2023. Following monetary policy tightening in February and March 2024 and a resumption of FX interventions, the naira has started to stabilise, the IMF said.

They recommended caution regarding amendments to the CBN Act that might weaken the Central Bank’s autonomy. They encouraged further progress in implementing the outstanding recommendations from the 2021 safeguards assessment.

The IMF emphasised the importance of close monitoring of financial sector risks. They supported the increase in the minimum capital for banks and urged the CBN to unwind the regulatory forbearance introduced during the pandemic.

The Fund acknowledged the recent improvements in the AML/CFT framework and called for sustained action to exit the FATF grey list. They supported the authorities’ efforts to foster financial inclusion and deepen the capital market.

The executive directors agreed with the thrust of the staff appraisal. They welcomed the bold reforms implemented by the new administration and commended the authorities’ focus on revenue mobilisation, governance, social safety nets, and upgrading policy frameworks in the face of Nigeria’s significant economic and social challenges.

Read also: IMF harps on governance, macroeconomic stability to attract investments into Nigeria

In view of the downside risks, the directors stressed the importance of steadfast, well‑sequenced, and well‑communicated reforms to restore macroeconomic stability, reduce poverty, support social cohesion, and pave the way for faster, inclusive, and resilient growth.

The IMF directors commended the authorities for restarting the cash transfer program and emphasised the urgency of scaling it up to mitigate acute food insecurity. They welcomed the authorities’ work on a comprehensive revenue mobilisation strategy including boosting tax enforcement and broadening the tax base.

They underscored that mobilising revenue and reprioritising expenditure, including phasing out costly and regressive energy subsidies, are critical to creating fiscal space for development spending and strengthening social protection, while maintaining debt sustainability.

The IMF also appreciated the authorities’ commitment to discontinue deficit monetisation and positively noted progress in macroeconomic policy coordination.

The Fund’s directors highlighted the importance of reforms to enhance the business environment, improve security, implement key governance measures, develop human capital, boost agricultural productivity, and build climate resilience.

These reforms are crucial to boost investor confidence, unlock Nigeria’s growth potential and diversify the economy, address food insecurity, and underpin sustainable job creation.