Stacks of US fifty and one hundred dollar bills in money bag

Remove subsidies, raise taxes – IMF

CURRENCY traders in Lagos became apprehensive yesterday as the naira depreciated thrice in six hours at the parallel market. The traders were meeting in clusters, painstakingly trying to unravel the rationale behind the sudden depreciation, after it had appreciated for about four weeks. It exchanged at N467 to the dollar as of
4:30pm, after it traded for N455, and N460 in a couple of hours yesterday, while the pound sterling and euro closed at N560 and N505, respectively. The Nigerian currency, after weeks of sustained appreciation, stabilised at N455 to a dollar prior to its depreciation on Wednesday. At the Bureau De Change (BDC) window, the Nigerian currency sold at N385 to a dollar, CBN controlled rate, while the pound sterling and the euro closed at N553 and N500, respectively. The official interbank market was not isolated from the depreciation fever as the naira lost N1.78 to close at N306.78, from N305 it posted previously. Traders at the market could not offer sufficient reason for the performance of the naira at the parallel market. But this happened at a time when Abuja, Kano and Port Harcourt were keying into the First Bank of Nigeria and Travelex Forex auction window. Traders believe that the liquidity challenge would ease off by Thursday after BDCs would have bought Forex from Travelex in Lagos. The unit had been quoted at 455 since October 17 before weakening on Wednesday, they said. On the official market, the naira ended at 305.50 per dollar, a level it has closed at for more than two months, supported by central bank interventions. The naira had been relatively stable on the black market after the bank asked international money transfer firms to sell dollars directly to bureau de change operators to boost liquidity and narrow the gulf with the official market. The directive was initially effective, traders said, but its impact has been limited due to few dollars coming into Nigeria. “What we get from Travelex is not sufficient,” one trader told Reuters, referring to demand in the market. International money transfer firm, Travelex, sells around $15,000 to 1,000 retail currency outlets weekly, but the
amount is a fraction of what is required to cover demand from individuals and small businesses. Dollar shortages have caused many firms to halt operations and lay off workers, compounding an economic crisis exacerbated by the fall in global prices for oil, which accounts for 70 percent of Nigeria’s budget revenue. The central bank has struggled to support the local currency as its dollar reserves have continued to fall. Traders say the naira has been testing new lows as they try to find thresholds where liquidity can begin to return. Remove subsidies, raise taxes – IMF In order to effectively absorb the impact of their slowest growth in more than two decades, Nigeria and other African exporters of oil and commodities should remove subsidies and boost taxes, the International Monetary Fund, IMF, said yesterday. The fund has also stated that African nations needed to balance commercial debt, such as Eurobonds, with other cheaper forms of financing from development institutions. According to Reuters, the director of IMF’s African Department, Abebe Selassie said growth could start to recover next year to three per cent, but only if the battered economies carry out fiscal reforms. The news agency quoted Selassie as saying: “Should they fail to do that, vulnerabilities will heighten and the crisis of the weak economic performance we have seen so far will get even more difficult.” The IMF cut its 2016 growth forecast for sub-Saharan Africa to 1.4 percent, from three percent in May, as the drop in commodity prices impacted
countries such as Nigeria and Zambia. African economic growth was more than five percent in the decade leading up to the commodity price slump, but it is now being dragged lower by 23 resource-dependent nations like Nigeria, South Africa and Angola. While average growth was three percent last year, countries that are more diversified like Rwanda and Senegal will continue to grow at more than five percent. Nigeria, which is in its first recession for more than 20 years, has been seeking to widen its tax base to offset lower revenues caused by the slump in oil prices. Selassie said Nigeria’s low debt was a source of strength, adding officials needed to offer more certainty through a “coherent and consistent policy package.” He noted: “Fuel subsidies take out huge amounts of government resources and generally also they tend to be very regressive.” Selassie said African nations needed to balance commercial debt like Eurobonds, with other cheaper forms of financing from development institutions. Eurobonds “cannot be the main source of financing for countries. It can complement other forms of financing and importantly, you want to minimise the deficit financing,” he stated. The Minister of Finance, Mrs. Kemi Adeosun said last week that the federal government was optimistic of selling a Eurobond worth around $1billion before the end of the year and was in the process of appointing managers for the transaction. The Eurobond is part of the country’s plans to borrow a total of N1.8trillion ($5.8billion) from abroad and locally to fund an expected budget deficit of N2.2trillion this year. REUTERS

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