IMF Applauds CBN’s Lifting of 43 FX Restricted Items, Calls for New Approach to Bridge Exchange Rates Gap

The International Monetary Fund (IMF) has praised the Central Bank of Nigeria (CBN)’s decision to remove restrictions on 43 items that were previously not allowed access to foreign exchange at the official window.

This move it said is a positive step towards improving the efficiency and transparency of Nigeria’s foreign exchange market.

The IMF also acknowledged that the newly appointed officials under President Bola Tinubu have initiated a series of reforms aimed at delivering favorable outcomes for Nigerians. It, however, noted that the reforms may require time to achieve the desired results.

Abebe Aemro Selassie, the Director of the African Department at the IMF, announced on Friday the IMF’s approval of Nigeria’s central bank’s decision. This announcement was made during a media briefing on the Regional Economic Outlook for Sub-Saharan Africa, which took place at the IMF/World Bank Annual meetings in Marrakech, Morocco, per THISDAY.

The CBN announced on Thursday that importers of THE 43 items that were previously restricted from accessing foreign exchange (FX) at the official window are now permitted to purchase FX in the Nigerian foreign exchange market moving forward. This decision is part of the CBN’s effort to promote a unified, well-functioning forex market, boost liquidity, and facilitate a more transparent pricing mechanism. It is expected to benefit local production, reduce inflationary pressures, and enhance economic stability.

In June 2015, the CBN, under former governor Godwin Emefiele, initially introduced a list of 41 items that were restricted from purchasing foreign exchange (FX) from the market. This move was aimed at conserving scarce forex resources, promoting domestic production for self-sufficiency, and boosting exports. Subsequently, the list was expanded to include 43 items.

According to the IMF, the view is that Nigeria and many other economies are so sophisticated and complex that trade restrictions like those previously imposed may not be effective.

“The best way to manage a modern economy is to have fiscal policy lever and monetary policy lever to use to affect the kind of policy outcome you want, rather than saying I don’t like these goods and so I don’t want it to come in, etc, that tends to create an unhelpful distortion.

“Of course, there are tax policies you can also use if you really want to be against certain types of imports. In general, I think the direction the CBN has moved is a helpful one,” Selassie said.

Regarding Nigeria’s debt, Selassie emphasized the need to implement tax reforms to enhance revenue generation, create fiscal space, and reduce the burden of servicing and acquiring debts. He additionally told THISDAY that Nigeria’s current debt situation is sustainable and clarified that the country is not engaged in discussions with the IMF regarding debt restructuring.

“I am not aware of any debt discussions that are going on, debt profiling, or debt restructuring in Nigeria. In Nigeria, the most important cause of the pressure is the fact that the government does not generate enough tax revenue for all the services it needs to provide.

“Interest payment as a share of revenue is very high and does not leave much room to spend on other issues that is the key issue that needs to be worked on.

“While there is not enough tax revenue, I think in the past reliance on oil when prices were high and secondly the subsidy regime which also implies and entails lots of government resources being directed where they should not be.

“These are all interlinked issues including causing some of the inflation that you have and the difficulty to tap into the international capital market. That is why the government has had to rely more on domestic financing which of course has crowded out the private sector and put constraints on monetary injections which has weakened the exchange rate,” he said.

He added that the assessment of debts should not be based on the nominal value of a debt stock but on how it relates to many other economic variables.

The Bola Tinubu administration has introduced a series of fiscal policy reforms aimed at revamping the nation’s economy. However, the reforms, which include the floating of the FX market and the removal of fuel subsidy, have compounded economic hardship.

Selassie said the reforms need further work to yield the expected results. He acknowledged Nigeria’s significant potential and highlighted positive strides in recent reforms. He emphasized the importance of ensuring that these reforms are comprehensive and mutually reinforcing, encompassing both monetary and fiscal policies to drive sustainable progress.

He said: “Just as things were not reinforcing each other in the past, there is scope to make the reforms reinforce each other. So, the exchange rate reforms that the government did were very welcome in trying to unify the rates.

“Similarly, the fuel subsidy will not help or stick unless they tighten monetary policy and also you are doing something to mobilize more tax revenue.

“So, a holistic package of reforms is what is needed and we have to give a bit of time to the new administration also.

“The CBN governor has just been appointed, and the minister of finance has only been appointed a few weeks. So, we are hopeful that they will move in the right direction and we stand to provide every policy advice that the government needs.”

Selassie underlined the need for a more comprehensive approach to address the exchange rate gap, highlighting that it should go beyond mere adjustments and corrections. He emphasized the importance of implementing stricter monetary policy conditions in conjunction with these measures to effectively bridge the exchange rate gap.