FX crisis: Ex-CBN deputy governor proposes $30bn IMF stabilisation fund

Former deputy governor of the Central Bank of Nigeria (CBN) Kingsley Moghalu has proposed a $20-30 billion International Monetary Fund (IMF) stabilisation facility to solve the lingering foreign exchange (FX) crisis.

“To get out of Nigeria’s foreign exchange crisis, the FGN must very carefully consider whether it should take a formal stabilization package of $20-30 billion from the International Monetary Fund”, he said in his keynote speech on ‘Nigeria’s Distressed Economy: Which Way Forward?, delivered on Tuesday at the Leadership Newspaper Group 2024 conference and awards, in Abuja.

He said this option should be subjected to a thorough analysis by experts, as opposed to any knee-jerk action or uninformed public opinion. According to him, while there is typically a strong emotional and substantive argument against this approach in the country, it has clear pros and cons.

Regarding the pros, he said a substantive IMF facility (it would have no impact if it is not a big package) would markedly increase forex liquidity and Nigeria’s forex reserves more transparently.

Moghalu, who is the Chairman, advisory board and board of directors, Africa Private Sector Summit (APSS), believes that it will improve investor sentiment and attract a marked increase in foreign investment because of the confidence it will give investors, all of which will further stabilize the forex market while the country pursues more fundamental and structural changes.

“It will also impose more fiscal discipline in the country’s fiscal management. In any case, the reforms (removal of subsidies) are part of the Bretton Wood template. Why take all the pain that is creating anger, without the gain of robust inflows and improved investor sentiment?” he said.

On the cons, he said a major critique of IMF programs is that they do not solve the longer-term problems of borrowing countries, although they are helpful in the short to medium term – if and when the program is implemented in full.

The ex-CBN deputy governor said the experiences of Ghana and Sri-Lanka demonstrate the limitations of IMF programs, adding that both countries have borrowed from the IMF 17 times and 16 times respectively, and that both have continued to experience economic crises in recent years.

“Perhaps one response to this dilemma is that the responsibility for any country’s economic transformation remains the country’s, not that of the IMF. Countries should plan well ahead of stabilization packages that create temporary relief.”

Another major risk of IMF borrowing, he pointed out was the debt sustainability challenge it can create. This is relevant to an already debt-stressed country such as Nigeria. A default on an IMF loan will create a negative credit rating and restrict opportunities for future access to financing. IMF loans also affect a country’s sovereignty by dictating in reality economic policies and choices of borrowing countries, he said.

The IMF had a total credit portfolio of $112.8 billion as of March 5, 2024.
The Fund’s biggest loan was extended to Argentina in 2018- a $57.1 billion package that was disbursed over a three year period.
Argentina was in a similar crisis as Nigeria is in today when it sought out the IMF. The South American country was struggling with double digit inflation, acute dollar shortages and a run on its currency, the peso.

Beyond the current actions by the CBN, Moghalu said the apex bank must demonstrate a willingness to go hard on forex speculation that is going on in Nigeria’s banking sector.

“It is not enough to focus on cryptocurrency P2P (peer to peer) platforms such as Binance which do not have political godfathers in Nigeria. The central bank must have the political will of a regulator to crack down on erring banks and bankers. Making examples of a few proven cases of forex hoarding will undoubtedly set heads straight and improve the forex situation.”

He noted that the CBN under the overall leadership of Sanusi Lamido Sanusi (during which period I served as deputy governor) boldly and successfully cracked down on corruption in the banking sector after the global financial crisis. This approach, he said helped save Nigeria’s banking sector, and thus the economy.