IMF backs FG’s measures on falling global oil prices

The International Monetary Fund (IMF) on Thursday said the measures put in place by the Federal Government aimed at mitigating the impact of the recent significant fall in global oil prices on the economy is a move “in the right direction”.

Gene Leon, the International Monetary Fund (IMF) mission chief for Nigeria, said this in a statement made available to BusinessDay.

According to Leon, “In a combination of actions, most recently the communiqué after the Central Bank of Nigeria’s Monetary Policy Committee meeting of November 24-25, the authorities have announced a set of policies aimed at mitigating the impact of the recent significant fall in global oil prices on the economy.

“These include: adjusting the exchange rate, resubmitting the Medium Term Expenditure Framework to the National Assembly with proposed tax and expenditure measures to achieve the deficit target consistent with a lower budget oil price and tightening monetary policy.”

Continuing, the IMF chief said, “We are supportive of and welcome these actions, which we view as complementary and moving in the right direction. Of course, the global situation remains fluid and the key issue is being ready to manage downside risks and for the authorities to be prepared, based on assessments of credible scenarios, to consider additional measures, as necessary.”

It would be recalled that Ngozi Okonjo-Iweala, coordinating minister for the economy and minister for finance, had made moves assuring jittery financial markets as falling oil prices erode the country’s revenue and investors sell naira assets from bonds to equities.

The Federal Government said it is working out some surcharges on certain luxury items to make the country’s rich pay a little bit more, as part of several quick measures to ramp up revenue shortfalls.

The government also said it was adopting a multi-pronged strategic response to mitigate the adverse effects of the decline in global oil prices, which have seen a significant drop in oil revenues for Nigeria since June.

Part of those measures is also that Medium Term Expenditure Framework (MTEF) and the budget 2015 proposal to the National Assembly have been revised, as government now proposes a benchmark of $73 per barrel to the National Assembly, compared to the earlier $78. Government spending would also be tightened, especially on foreign travels and trainings, going forward.

Also on Tuesday, in a move described by analysts as bold and audacious, the Central Bank of Nigeria (CBN) moved to curb negative speculation on the naira by announcing a combination of rate hikes, tighter money policy and a devaluation of the currency.

The Monetary Policy Committee (MPC) of the CBN met on November 24 and 25, against the backdrop of moderate but uneven growth in the global economy and a buildup of vulnerabilities in the domestic economy from falling oil prices.

Among the outcomes of the MPC meeting, was an increase in the Monetary Policy Rate (MPR) by 100 basis points, to a record high 13 percent, Godwin Emefiele, CBN governor, announced to reporters on Tuesday in Abuja.

The CBN also increased the cash reserve requirement on private sector deposits by 500 basis points, to 20 percent, and moved the midpoint of the official window of the foreign exchange market from N155/US$ to N168/US$.

The trading band for the currency was also widened around the midpoint by 200 basis points, from +/-3 percent to +/-5 percent.