The International Monetary Fund and World Bank have intensified calls on Nigeria to speed up currency reforms without which Africa’s largest economy may fail to achieve the growth it needs to prevent millions more from falling into penury.
A unified and flexible exchange rate will ease external imbalances and bolster activity in the OPEC nation, which slid into its second recession in four years in the third quarter, the IMF said in a statement on Friday after concluding a virtual mission. A day earlier, the World Bank said President Muhammadu Buhari’s administration needed to change foreign-exchange policies if it wanted to get a $1.5 billion loan.
The country is asking for financial help to overcome a crisis that could sink an extra 11 million people into poverty by 2022, bringing the total number to 100 million, or about half of the population.
Central Bank Governor Godwin Emefiele and Finance Minister Zainab Ahmed have said they would seek a more flexible and unified naira as part of a pledge made to the IMF for the release of $3.4 billion in emergency financing in May.
A sharp drop in dollar revenues has forced the country’s administration to devalue the currency by more than 20% this year. Still, the naira remains too expensive and a dollar shortage is starting to hurt local businesses, economists say.
Incomes in Nigeria have fallen back to 1980 levels as population growth outpaced economic expansion. The situation is unlikely to improve without policy changes.
“Under current policies, the outlook is challenging. Real GDP is projected to contract by 3.25% in 2020. The recovery is projected to start in 2021, with subdued growth of 1.5% and output recovering to its pre-pandemic level only in 2022,” the IMF said.
“Nigeria is at a critical juncture in its history,” Shubham Chaudhuri, the World Bank’s director in Nigeria, said in a webinar on Thursday. The country has a choice “whether or not to continue business as usual or decisively break from the past,” he said.
The merger of different exchange rates and allowing the naira to float more freely would speed up the recovery of the economy, according to the World Bank.