With public spending shooting up to 37 per cent in 2010 from 10 per cent in the previous year, the International Monetary Fund Thursday suggested that the Central Bank of Nigeria further increase the monetary policy rate (MPR) to curb rising inflation and weaken and the naira.

MPR, which is the benchmark interest rate and the rate at which the commercial banks borrow from the CBN, was increased by 25 basis point from 6.25 percent to 6.50 percent on last month.

IMF, which concluded its Article IV Consultation with Nigeria on February 11, 2011 and released a statement yesterday, bemoaned the apex bank’s decision to sell the reserves rather than raise interest rate or allowing the exchange rate depreciate in response to the pressure on the naira.

It cautioned that speculation against the naira could become intense should reserves continue to fall.

While the Fund considered the recent increase in policy interest rates appropriate, it however, pointed out that “short-term real interest rates remain negative”.

“Inflation has been stuck in the low double digits for the past two years and foreign reserves have been falling as the Central Bank of Nigeria has focused on maintaining exchange rate stability and low interest rates.

“The fiscal stimulus intensified in 2010, notwithstanding the already solid growth performance and high inflation. After rising by 10 percent in 2009, consolidated public spending increased by 37 percent in 2010. The non-oil primary deficit has increased by 5 percentage points to 32 percent of non-oil GDP.

“Despite world oil prices well in excess of the budget benchmark price, the government spent all current oil revenues and drew on savings in the Excess Crude Account, at a time when stabilisation called for a rebuilding of buffers. Despite high inflation, the CBN reduced the rate on its standing deposit facility. In response to pressure on the currency, the CBN sold reserves rather than raise interest rate or let the exchange rate depreciate. The CBN recently raised interest rates, but short-term real interest rates remain negative,” the IMF noted in the statement.

It said further that monetary tightening may be needed should inflation pressures continue.

It stated that directors took note of the staff’s assessment of an overvaluation of the naira, and stressed that greater exchange rate flexibility would prevent one-way bets in the foreign exchange market and cushion external shocks.

IMF said its directors supported the authorities’ planned fiscal consolidation to rebuild fiscal space and contain price pressures.

It added that they welcomed proposed efforts to strengthen non-oil revenues, as well as “the draft budget for 201, which aims to reverse the expansion in real public spending in 2010”.

IMF also stated that its directors also saw the need for a strong oil-revenue rule to prevent “policy pro-cyclicality going forward”.

As such, it added, the IMF directors welcomed the Federal Government’s intention to establish sovereign wealth funds under the Nigerian Sovereign Investment Authority (NSIA) to shield the budget from oil-revenue volatility and enhance the management of oil wealth.

However, noting that one of the NSIA funds would finance infrastructure projects, the IMF pointed out that they encouraged the authorities “to channel such expenditures through the budget in order to safeguard the stabilization function of the NSIA and the quality of public investment”.

However, IMF said the economic outlook remained positive and risks were generally balanced.

The Fund projected the nation’s economy to grow by 7 per cent in 2011, moderating gradually in subsequent years.

It also projected inflation to decline to 9 per cent by the end of 2011.

The Fund envisaged near-term risks to growth mostly relate to domestic factors.

“On the upside”, it said, “a shift in government spending towards capital formation and planned reforms in the power sector could boost growth, and passage of the Petroleum Industry Bill could unlock additional investments in the oil sector.”

It added: “On the downside, there is a greater risk of lower rather than higher oil production.”

IMF said inflation risk hinged crucially on the 2011 budget as it feared that “the National Assembly could pass a more expansionary budget for 2011 than was submitted, undermining the CBN’s ability to deliver on inflation”.

Source: http://www.thisdaylive.com/articles/imf-proposes-devaluation-of-naira/86434/

Nah.




Fool me once, shame on you. Fool me twice . . .

Trust GEJ to embrace whatever comes from IMF.

They told him items on banned list was too long, he agreed!

They have now notified him that naIRa is overvalued, trust him to agree!

chosen04:

Trust GEJ to embrace whatever comes from IMF.

They told him items on banned list was too long, he agreed!

They have now notified him that naIRa is overvalued, trust him to agree!

I will say they were right on that one. We have, over the years, embraced banning as a solution to our problems leading to us having so many things on our banned list. But as we have all learnt, that has not helped any. So, definitely reducing the items on the banned list was not a banned idea. Only it was supposed to go with line with development in other areas. We have been registering an average growth of 7% for straight 2 years, according to the books, so it makes sense with that to suggest removing some items from the list.

On Devaluation, why has it worked for China, and why can't we make it work for us in similar fashion?

the yuan isn't as devalued as the naira and we don't manufacture as much as china.
this is a ploy to get cheap oil as it was the first time.

The way I see it, it makes sense to believe that with all the GROWTH we have been recording in our books for the past 2 years(average of 7% every quarter), increasing manufacturing and devaluing the naira would aid our economy in a good way.

Always assuming everything is a ploy has lead us to close our eyes while the rest of the world, even common china has gone past us.

kobo first china never devalued the yuan and on ur second post devaluing the naira to stimulate export is just rubbish talk we dont hv the manufaturing base, come can't produce for the local markert let alone export

Kobojunkie:

I will say they were right on that one. We have, over the years, embraced banning as a solution to our problems leading to us having so many things on our banned list. But as we have all learnt, that has not helped any. So, definitely reducing the items on the banned list was not a banned idea. Only it was supposed to go with line with development in other areas. We have been registering an average growth of 7% for straight 2 years, according to the books, so it makes sense with that to suggest removing some items from the list.

On Devaluation, why has it worked for China, and why can't we make it work for us in similar fashion?

I personally agree that the banned items are too long. . . But what happened when ''WE'' complained? No body listened. Its until imf COMPLAINED, giving one the impression that all it takes for them to listen is when it comes from a foreign body.

Secondly . . . . . . .I dont belive that IMF is right in saying that our naIRa is overvalued. Its wrong! one just prays this wont end up as another SAP saga.

Ikengawo:

the yuan isn't as devalued as the naira and we don't manufacture as much as china.
this is a ploy to get cheap oil as it was the first time.

I share your sentiment.

chosen04:

I personally agree that the banned items are too long. . . But what happened when ''WE'' complained? No body listened. Its until imf COMPLAINED, giving one the impression that all it takes for them to listen is when it comes from a foreign body.

Secondly . . . . . . .I dont belive that IMF is right in saying that our naIRa is overvalued. Its wrong! one just prays this wont end up as another SAP saga.

I don't know if the Naira is overvalued either . .  . all I see is a situation where we keep reporting near EXCELLENT GROWTH quarter after quarter but it never seems like we actually manufacture anything to take advantage of the devaluation, which we could.

Honestly, my qualms is I SEE near EXCELLENT GROWTH . . . but I don't see us taking advantage of it. If we didn't depend so much on imports, devaluation( even the last one) would have worked out really well for us. but it seems we (not some other country) are refusing to work harder at improving manufacturing, and that is the reason.

chosen04:

I personally agree that the banned items are too long. . . But what happened when ''WE'' complained? No body listened. Its until imf COMPLAINED, giving one the impression that all it takes for them to listen is when it comes from a foreign body.

Secondly . . . . . . .I dont belive that IMF is right in saying that our naIRa is overvalued. Its wrong! one just prays this wont end up as another SAP saga.

go to u.s costume website and look ip for items u can't bring to their country then u will see nigeria's list is not that long

EzeUche_:

Yes, where is our manufacturing base? We do not even have a steady power supply to help our industries.

Devaluing our currency even more, will prove more disastrous for the Nigerian economy and can spell disaster for the nation as a whole.

am with u all the way we went thru all this in the 80's what did we get out of it nothing.

9jarukus:

go to u.s costume website and look ip for items u can't bring to their country then u will see nigeria's list is not that long

Please you shouldnt be comparing niGERia with USA in this case, Its better to compare with a ''banana to tomato'' republic like ours. . . . . . . .

. . . . .And I still maintain that the list is unnecessarily too long. Its even worst when the intended advantage of protecting local manufacturers is not being achieved due to the activities of smugglers. But my question is why must the govt only listen when its coming from int'l bodies like IMF and co?

chosen04:

Please you shouldnt be comparing niGERia with USA in this case, Its better to compare with a ''banana to tomato'' republic like ours. . . . . . . .

. . . . .And I still maintain that the list is unnecessarily too long. Its even worst when the intended advantage of protecting local manufacturers is not being achieved due to the activities of smugglers. But my question is why must the govt only listen when its coming from int'l bodies like IMF and co?

Are we ourselves talking?

Buhari resisted devaluation and IBB came and devalued and ever since 90% Nigerians have been plunged into abject poverty.

Sounds like history repeats its self.

Does IMF wish to finish Nigeria completely

Let us pray that Buhari returns to power come April

GenBuhari:

Buhari resisted devaluation and IBB came and devalued and ever since 90% Nigerians have been plunged into abject poverty.

Sounds like history repeats its self.

Does IMF wish to finish Nigeria completely

Let us pray that Buhari returns to power come April

I don't think it happened that way.

http://books.google.com/books?id=ggfTqkquo5UC&pg=RA1-PA1-IA5&lpg=RA1-PA1-IA5&dq=Nigeria+decline+in+Manufacturing&source=bl&ots=Tt9DxWUbkG&sig=VIHnHdF6dSfacwjpWsW9iOAoek8&hl=en&ei=RrdeTf3fG5GugQfNn-iHDg&sa=X&oi=book_result&ct=result&resnum=8&ved=0CFAQ6AEwBw#v=onepage&q&f=true

Madam, kindly then elaborate on how exactly it did happen.

Incidently it is no use publishing a report produced by IMF themselves - that is hardly going to show themselves in a bad light.

Kobojunkie:

I don't think it happened that way.

http://books.google.com/books?id=ggfTqkquo5UC&pg=RA1-PA1-IA5&lpg=RA1-PA1-IA5&dq=Nigeria+decline+in+Manufacturing&source=bl&ots=Tt9DxWUbkG&sig=VIHnHdF6dSfacwjpWsW9iOAoek8&hl=en&ei=RrdeTf3fG5GugQfNn-iHDg&sa=X&oi=book_result&ct=result&resnum=8&ved=0CFAQ6AEwBw#v=onepage&q&f=true

Kobojunkie:

I don't think it happened that way.

http://books.google.com/books?id=ggfTqkquo5UC&pg=RA1-PA1-IA5&lpg=RA1-PA1-IA5&dq=Nigeria+decline+in+Manufacturing&source=bl&ots=Tt9DxWUbkG&sig=VIHnHdF6dSfacwjpWsW9iOAoek8&hl=en&ei=RrdeTf3fG5GugQfNn-iHDg&sa=X&oi=book_result&ct=result&resnum=8&ved=0CFAQ6AEwBw#v=onepage&q&f=true

yes it happend that way, any african that believes anything i.m.f got to say is a fool and can anybody show me were i.m.f help develop any country

GenBuhari:

Madam, kindly then elaborate on how exactly it did happen.

Incidently it is no use publishing a report produced by IMF themselves - that is hardly going to show themselves in a bad light.

The data for the reports was provided by The Central Bank of Nigeria -- Nigerian authorities.   

If you come back saying that the CBN is not believable, then I will ask who we should believe instead, and please do not tell me I should believe you just because.

just pray that the present Gov't isn't as dumb as those decades back. it is clear world wide "IMF" is bad luck and their advice is devilish. A good example is during 1997 Asia crisis, countries that took their advice are still struggling till date, while those against their policies and their dirty money are doing so fly now,

Kobojunkie:

The data for the reports was provided by The Central Bank of Nigeria. 

If you come back saying that the CBN is not believable, then I will ask who we should believe instead, and please do not tell me I should believe you just because.

The point you are making is not very clear. Are you arguing that IBB did not implement SAP? Or that SAP was started by Buhari?

GenBuhari:

Buhari resisted devaluation and [size=14pt]IBB came and devalued and ever since 90% Nigerians have been plunged into abject poverty[/size].

That is what we are on about

so? report was written by IMF, The data was interpreted by IMF, why do you think it would be a reliable report to use to back up your argument.

How does it disprove the fact that IBB's devaluation of Naira was cause of 90% of Nigerians being in abject poverty today?.

I'm surprised we're propping the value of the naira
Reminds me of the Abacha days, when we paid so much to protect the 'prestige' of the naira

GenBuhari:

so? report was written by IMF, The data was interpreted by IMF, why do you think it would be a reliable report to use to back up your argument.

How does it disprove the fact that IBB's devaluation of Naira was cause of 90% of Nigerians being in abject poverty today?.

Well . . again, Data was made available by Nigerian authorities is what I am on about. If you have another interpretation please present it so we look closely at the information from that time.

Anyways, since there seems nothing else to work with, I will go with that one. The reports show that we were not really doing that bad even with the devaluation, on paper. So, I am moved to ask what exactly did we do wrong during the SAP years, since I don't think the devaluing of the naira is all it took to produce what I witnessed back during the IBB years.

Kobojunkie:

That is what we are on about

And what do you disagree with, with regards to that statement?

1. That IBB devalued - True
2. Following the devaluation of the Naira which was part of SAP (implemented by IBB), the standard of living of many Nigerians dropped, brought about by rising inflation and less purchasing power. It is difficult to ascertain whether it was 90% but it should be close to that figure

Lets just be glad Goodluck has no control over CBN decisions. Sanusi is a smart man, if it is not good for the economy, he won't allow it.