The International Monetary Fund, IMF, has warned that the official exchange rate may further depreciate by about 35 per cent, this year, adding that this could lead to inflation rate peaking at 44 per cent before the monetary policy tightening could bring the situation under control.
Naira, yesterday, traded at N1,542.58 per dollar in the Nigerian Foreign Exchange Market (NAFEM), and a 35 percent depreciation will bring the exchange rate to N2,081 per dollar.
In its February 2024 Post–Financing Assessment and Staff Report, IMF noted that the nation’s monetary policy is currently insufficiently tightened to bring inflation below 20 per cent while pressures on the Naira persist.
The report noted that amid the absence of local production and the recent liberalisation of commodity imports, the exchange rate would likely depreciate further.
IMF said Nigeria had been hit by another adverse climate shock in early 2024, following severe flooding in late 2022, which exacerbated the current weakness in agriculture and led to a decline in output and a surge in food prices.
According to the Bretton Woods institution, the country would benefit from developing a comprehensive macroeconomic and growth strategy, in collaboration and with support from development partners.
This, it said, would include aggressive monetary tightening, fiscal adjustment to restore macroeconomic stability, and putting in place climate adaptation measures.
It stressed that domestic demand had weakened due to the steep fall in real incomes – as investments in the oil sector would likely stall due to rising costs, and production declines.
The fund further predicted that the country’s growth could fall to zero in 2024 and only slowly recover to two percent in 2028.
IMF said the uncertainty over Nigeria’s net international reserves level poses additional risks, as would exogenous further shocks that impact external stability, poverty, and food insecurity
