President Buhari and Christine Lagarde: In heart-to-heart talk

International Monetary Fund chief Christine Lagarde told Nigerian lawmakers on Wednesday the IMF does not support foreign exchange restrictions, a policy option Abuja took after prices for its oil exports collapsed.

Addressing senior politicians during a four-day visit, she said any such restrictions should be temporary.

Nigeria’s central bank, dealing with the worst economic crisis hitting Africa’s biggest economy in years, has resisted calls by investors to devalue the naira more than the 20 percent it has been allowed to fall since the start of 2014.

President Muhammadu Buhari has supported central bank measures to restrict access to foreign exchange, but they have been unpopular with investors and highlight Nigeria’s dependence on crude oil exports, which make up over half of state revenues.

“Additional exchange rate flexibility, either up or down, can help soften the impact of external shocks, make output and employment less volatile, and help build external reserves,” Lagarde said.

“It can also help avoid the need for costly foreign exchange restrictions, which we don’t really support, and if they exist they should remain temporary by nature,” she added.

Last month, Buhari announced a record budget for 2016, forecasting a doubling of the deficit to 2.2 trillion naira ($11 billion) and a tripling of capital expenditure intended to help the country adjust to the downturn in oil, which has lost around two-thirds of its value since mid-2014.

The president said Nigeria, which has foreign currency reserves worth around $30 billion, will borrow as much as 900 billion naira abroad to fund its deficit, which is equivalent to 2.16 percent of gross domestic product. Some 984 billion naira would be borrowed at home.

On Tuesday the IMF managing director, who has held meetings with Buhari, Finance Minister Kemi Adeosun and Vice President Yemi Osinbajo, said she was not in Nigeria to negotiate a loan.

In her speech, Lagarde noted Nigeria’s economy grew by about 3.2 percent in 2015, “its slowest pace since 1999”, and said only a “modest recovery” was expected this year.

To confront the crisis, she said Nigeria should consider increasing VAT, which at 5 per cent is among the lowest rates in the world, as well as broadening the tax base and improving compliance to reduce revenue “leakages”.

“On recurrent expenditure, efforts should be made to streamline the cost of government and improve efficiency of public service delivery,” she said, praising efforts that have already been made in this area by Buhari’s administration.

The IMF chief has also held talks with Central Bank Governor Godwin Emefiele and representatives of the commercial banking sector. She will travel to neighbouring Cameroon on Thursday.