Nigeria must "harmonise" monetary and fiscal policies: finance minister

by Reuters 0

Monetary and budgetary policies in Nigeria need to be “harmonised” to boost the economy, Finance Minister Kemi Adeosun said on Friday, adding that moves towards this can be expected.

Nigeria has just unveiled a large increase in budget spending but its currency, the naira, is effectively frozen after the central bank last year imposed a number of restrictions aimed at conserving foreign exchange reserves.

The result has been a widening gap between the official and black market rates. While Nigeria’s fellow oil exporters such as Angola and Russia have allowed their currencies to depreciate, the naira exchange rate is reckoned to be well above fair value.

Investors as well as the International Monetary Fund have called on Nigeria to allow the naira more flexibility and the central bank last week eased some restictions.

Speaking to Reuters on the sidelines of the World Economic Forum in Davos, Adeosun said monetary policy was not under her purview but added:

“The central bank (governor) has started to outline some of the changes he is making to increase flexibility. It isn’t my purview but ultmately monetary and fiscal policy must reinforce each other to pull the economy in the same direction, so I am expecting moves towards harmonisation.”

The naira has fallen to record lows of around 305 to the dollar on the parallel market, compared with the official rate of 197.

The slump has prompted speculation that the currency may have to be formally devalued soon. The central bank monetary policy committee (MPC) meets next week.

“The MPC are meeting, I believe imminently, but I’ve seen already some signalling around improving supply … beginning to undo some of the controls that have been put in place,” Adeosun said.

“We really need the harmonisation, it’s the only way the economy will move forward.”

Adeosun, a British-born former banker, declined to say if she thought the naira should be devalued. But asked if she meant a currency policy that would allow the economy to be stimulated, Adeosun said: “Absolutely.”

She noted the 2016 budget envisaged a jump in capital spending to improve rail, road and power networks and stimulate an economy reeling under the impact of $30-per-barrel oil. Oil provides 95 percent of Nigeria’s foreign earnings.

Adeosun wrote in an article this week that Nigeria would borrow up to $5 billion from multiple sources, including the Eurobond market, to plug its deficit as it tries spend its way out of of its worst economic crisis in years.

“GDP growth is sluggish and we cannot afford to go into recession so we need to stimulate the economy by spending but it’s going to be very specific spending that develops the wider economy,” she added.

Nigeria’s debt-to-GDP ratio was only 12 percent, which meant there was room to borrow, she said, adding: “While we have fairly low debt we also have fairly low infrastructure so it makes sense to borrow and invest.”

Most of the borrowing could come from multilateral organisations, with only $1 billion to be raised from bonds, Adeosun said.

“So our blended average price will be fairly low and really more towards concessional than commercial rates.”