Don’t heed IMF’s advice to devalue, raise interest rate – Expert

An economic expert and financial analyst has asked the Nigerian government to disregard the International Monetary Fund’s (IMF) call to developing countries, Nigeria inclusive, to devalue their currency and also raise the benchmark interest rate. The IMF in a blog post titled, ‘Emerging Economies Must Prepare for Fed Policy Tightening,’ on Monday said emerging economies […]

An economic expert and financial analyst has asked the Nigerian government to disregard the International Monetary Fund’s (IMF) call to developing countries, Nigeria inclusive, to devalue their currency and also raise the benchmark interest rate.

The IMF in a blog post titled, ‘Emerging Economies Must Prepare for Fed Policy Tightening,’ on Monday said emerging economies like Nigeria should raise benchmark interest rates and devalue their currencies ahead of imminent policy tightening by the United States Federal Reserve Bank.

The IMF said “In response to tighter funding conditions, emerging markets should tailor their response based on their circumstances and vulnerabilities. Those with policy credibility on containing inflation can tighten monetary policy more gradually, while others with stronger inflation pressures or weaker institutions must act swiftly and comprehensively.”

“In either case, responses should include letting currencies depreciate and raising benchmark interest rates. If faced with disorderly conditions in foreign exchange markets, central banks with sufficient reserves can intervene provided this intervention does not substitute for warranted macroeconomic adjustment” it noted.

Mr. Paul Alaje, the Lead Economist and Enterprise Partner at SPM Professionals said the IMF prescription is ill-advised and should be taken with a pinch of salt.

He said the IMF’s advice if taken will plunge Nigeria into deeper poverty and a higher inflation rate.

“We are going to witness high inflation and poverty if we devalue. The last devaluation by the CBN did add about N1 trillion to Nigeria’s debt profile based on the debt management office report. We didn’t borrow any money extra, we just devalued” he stated.

He said Nigeria is highly dependent on foreign supplies thus sustained devaluation is bad for the local economy. “What the IMF and others have forgotten is that Nigeria is not just a developing nation, it is also dependent on consumption. So, if we devalue, it doesn’t mean we have substitutes. How many companies are producing in Nigeria? Almost everything we consume we import. If we devalue, it means we should be importing more. But that won’t be the case” he stated.

He emphasized that if we follow the advice, it will lead to higher poverty levels adding that already huge number of Nigerians are leaving in poverty.

According to him, in the face of imminent subsidy removal and with dosses of devaluation and interest rate hike, it will be a rough ride for ordinary Nigerians.