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IMF prescribes tight monetary policy for Nigeria

International Monetary Fund IMF
International Monetary Fund IMF

The International Monetary Fund (IMF) has advised the Central bank of Nigeria (CBN) to keep monetary policy tight for some time to sustain growth trajectory.

IMF made the recommendation at the briefing on world economic outlook at the spring meeting of the World Bank and the IMF in Washington DC, USA, yesterday.

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The Chief Economist and Director of Research at IMF, Gita Gopinath, who spoke on the sideline of the meeting, said, “Fiscal policy needs to tighten further for which mobilising more non-oil revenue is very important. For a monetary policy, it’s to stay tight for some more time. It has to be well communicated and transparent.

“There has been some convergence on the exchange rate front, there is also much more that needs to be done there and the structural reforms, all of these have to be put in a context of reform that helps boost private sector performance.”

Speaking on the impact of global trade tensions on the growth projections for Nigeria, Gopinath said Brexit and softening oil prices were the main risks.

She said, “For Nigeria, what’s very important is the oil price to the extent that other global risks transmit into a weaker oil price or there are other developments that are oil market specific that would be a factor weighing on Nigeria.

“We expect a growth recovery; growth was reasonably strong last year, and we think that things will improve a bit going forward. We cut our forecasts for 2019 precisely because oil prices are going to be a bit weaker than we expected the last time we did the forecast.”

She said it was time to be cautious because there was much of adjustment that needed to be done, as it was a process.

Gopinath further explained that the IMF’s baseline focus was that global growth should return in 2020, adding that it was precarious and that there were serious downside risks.

“The monetary policy space varies across countries. We expect to see unconventional monetary policy tools being used; for instance, in the Euro area. On the plus side, inflation pressure stays low so there is the possibility of the monetary policy to be more accommodating.

“On the fiscal side, it’s going to be country-specific because it depends on the fiscal space the country has. If the downturn turns more severe than what’s in our baseline projection, we will expect a synchronisation in fiscal spending because that will be more effective in boosting confidence and mitigate negative spillover from imports.”

 

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