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The International Monetary Fund (IMF) has denied making any recommendation for the devaluation of the naira.

Country chief/senior resident representative of the fund, Scott Rogers, who spoke with reporters yesterday in Abuja, said the fund merely ask for the adoption of a more flexible approach to the exchange rate management by the Central Bank of Nigeria (CBN), saying this would reduce the pressure on the naira.

He restated its demand for Nigeria’s commitment to set a more specific inflation objective in the range of 5-10 per cent to help reduce growing inflation on the economy.

Devaluation not recommended

He denied that the fund recommended the devaluation of the naira based on the assessment contained in its 2010 staff report.

According to him, “During the discussions, the IMF had, at no time, recommended the devaluation of the naira. What we recommended was a more flexible approach to the exchange rate,” considering that “sometimes exchange rate would depreciate, and at other times it would appreciate or strengthen.

“In the staff report submitted to the board of directors for discussion, our recommendation was for the Central Bank to focus more on price stability to bring inflation down, while focusing less on maintaining a particular exchange rate, in other words plus or minus 3 per cent,” Mr. Rogers said.

The IMF rebuttal follows recent rejection by stakeholders, including the CBN governor, Sanusi Lamido Sanusi, of the basis of the recommendations considered to be negative on the country’s economy.

The 2010 Article 1V Staff Report had recommended a four-point agenda for implementation by the country to consolidate the successes recorded so far by government’s economic reforms.

The recommendations included commencement of fiscal consolidation in the 2011 budget at 6 to 7 per cent of non-oil GDP, to rebuild policy buffers and support monetary policy in reducing inflation; monetary policy focus on reducing inflation, while allowing for more flexibility in interest rates and the exchange rate.

The other recommendation included a strong oil revenue-based fiscal rule to insulate the economy from the volatility in oil revenues; addressing the legal and institutional weaknesses of the current stabilisation mechanism by establishing a Sovereign Wealth Fund (SWF), as well as inclusion of oil revenue rule in legislation to strengthen macroeconomic management.

“If Nigeria is going to devalue the national currency, it is her sovereign responsibility. To recommend devaluation is to say that the exchange rate should be pegged at a specific value. We feel that the CBN and the government should give focus on specific monetary policy objective and allow some flexibility in the foreign exchange market. If Nigeria were to decide to have a peg, that’s Nigeria’s decision and not IMF’s,” he said.

Pointing out that there are oil producing countries like Saudi Arabia and Kuwait that have pegs that are working for them, while others have pegs that are not working, like Venezuela, he said the country’s economy has shown resilience in the face of pressures from the global economic crisis, with non-oil sector growth rate in 2008 at 9 per cent and 2009 at 8.3 per cent as well as 7.9 per cent in 2010, pointing out that despite the collapse in the global oil prices and the country’s banking sector crisis, the projection for 2011 and 2012 remain strong at 7.7 and 7.5 per cent respectively.

The IMF chief noted the rapid growth of the real economy, though fiscal policy in 2010 had become highly pro-cyclical, as indicated by about 40 per cent increase in government spending, as oil revenues grow at a time of strong economic growth and relatively high inflation, resulting in more pressures and demand for the provision of services and facilities the country produces or imports.

The problem, he pointed out, is worsened by the fact that commitment to the price stabilisation policies of the government, particularly the management of the Excess Crude Account (ECA) and the crude oil benchmark price, has weakened over time.

Though government did well in the management of the ECA in the early years, Mr. Rogers said, even with the oil production rising and prices above benchmark levels, there are a lot of withdrawals and spending at a time the country was expected to be accumulating international reserves.

Similarly, he said the CBN monetary policy for 2010 was fairly accommodative, with very low credit policy rates and conditions, particularly interest rate on standing deposit facility with apex bank for most part of the year at 1 per cent, while the rate for 91-day treasury bills was at 2 per cent on government securities.

Other key issues, he said, included the country’s low domestic interest rates, declining external reserve, high inflation at a period that most oil exporting nations are rebuilding their external reserves and strengthening their current account balances.