IMF Defends Policy Advice to Nigeria, Endorsing FX Rate Reforms and Subsidy Removal

 

The International Monetary Fund (IMF) has reiterated its support for Nigeria’s recent economic reforms, specifically the foreign exchange rate adjustments and the removal of fuel subsidies. In a statement to on Wednesday, October 30, the IMF highlighted these measures as vital for Nigeria’s long-term economic stability.

Abebe Selassie, Director of the IMF’s African Department, commended the Nigerian government’s steps toward subsidy removal and foreign exchange reforms during the recent IMF/World Bank meetings in Washington, D.C. He underscored that these moves align with longstanding IMF recommendations aimed at fostering growth by channeling funds into infrastructure, health, and education.

“Removing the subsidy unlocks the economy’s vast potential, attracting investment and fostering growth,” Selassie noted, adding that savings from subsidies could be redirected to assist vulnerable households facing economic challenges.

Addressing Nigerian media concerns over IMF involvement, the institution clarified its position, stating that it had reviewed Nigeria’s policies on petrol subsidies and foreign exchange before the reforms, identifying inefficiencies in the subsidy model. The IMF argued that fuel subsidies, while benefiting lower-income households, also disproportionately help wealthier Nigerians who don’t need government support. Additionally, the IMF pointed out that subsidized fuel is often smuggled into neighboring countries with higher fuel prices, resulting in indirect benefits to those outside Nigeria.

The IMF also addressed Nigeria’s previous fixed exchange rate policy, which led to a significant disparity between official and parallel exchange rates, putting pressure on the Central Bank’s reserves. “Until mid-2023, Nigerians faced a premium of around 60 percent on the parallel market,” the IMF said, stressing that a market-determined rate would allow fair access to dollars at a consistent price.

Reaffirming its recommendations, the IMF stated, “We stand by our advice,” and highlighted that its suggestions are intended to bring about macroeconomic stability and an improved standard of living. As part of a broader policy mix, the IMF also supports social transfers to mitigate the impact of inflation and economic changes on vulnerable communities.

The IMF concluded by clarifying that it offers similar guidance to all member nations, with each government ultimately making policy decisions based on various inputs.