The International Monetary Fund (IMF) has expressed concern over Nigeria’s move to renew fuel subsidies and urged the government to continue efforts to unify its exchange rates.
Nigeria, Africa’s largest oil exporter, which still has to import almost all its fuel needs due to lack of refining capacity, said in March it had ended costly fuel subsidies.
It also has multiple naira rates running in parallel that were put in place during a 2016 oil price crash to avoid a big devaluation but which have underpinned an unofficial exchange market.
“The mission (IMF team) expressed its concern with the resurgence of fuel subsidies,” the IMF said in a statement following virtual meetings with the Nigerian authorities.
“The mission recommended maintaining the momentum toward fully unifying all exchange rate windows and establishing a market-clearing exchange rate,” it added.
The country’s central bank has recently been letting the currency’s official value gradually weaken in an apparent move to allow it to converge with what is known as the NAFEX rate, a market-determined rate for investors and exporters.
The IMF’s comments came after the World Bank this week said the central bank’s management of the foreign exchange regime had reduced access to foreign exchange, undermining investor confidence and investment appetite.
The IMF also said in its statement last Thursday that Nigeria’s banking industry remained well-capitalised with the level of non-performing loans (NPLs) contained.
“Nevertheless, it remains to be seen what share of forborne loans may turn non-performing as the impact of the pandemic abates,” it said, adding that NPLs often rose towards the end of an economic crisis.