AFRICA: IMF Calls For Currency Devaluation as Nigeria’s Economy Nosedives


The International Monetary Fund (IMF) has advised the Central Bank of Nigeria (CBN) and other central banks in Africa to allow their currencies to depreciate so as to withstand shocks to their economies. The IMF stated this in its 134-page Regional Economic Outlook for October 2015 posted on its website.

The IMF stated that central banks in a growing number of countries had started tightening monetary policies, warning that these developments may affect inflation expectations where inflation rates are near or even surpass the highest point of established bands. The IMF also pointed out that resisting currency pressure depletes foreign exchange reserves and results in weaker imports.

“Meanwhile, some central banks have intervened in the market to contain exchange rate volatility, and others, most notably oil exporters, have drawn on their external buffers to smooth the adjustment to lower commodity prices.

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“Some countries, including Angola and Nigeria, have also introduced administrative measures to stem the demand for foreign currency, significantly hampering the conduct of private sector activities in the process”.

“Given the strong headwinds to activity in commodity-exporting countries, banks could well see a worsening of the quality of their assets”
“Recent analysis suggests that financial stability indicators in natural-resource-rich countries, such as bank profitability or non-performing loans, tend to deteriorate and the probability of systemic banking crises tends to increase in the wake of negative commodity”

“Such spill-overs to the financial sector are likely to weigh on credit supply and the process of financial deepening witnessed over the last few years, especially in oil-exporting countries, where credit growth had been particularly strong—with detrimental effects on both growth and economic diversification,”  stated the IMF.

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“Load shedding and electricity shortages, triggered by delays in upgrading aging power plants and filling the power generation gaps, have become a regular occurrence in Ghana and South Africa, with particularly acute effects in the manufacturing sector”.

“Worsening conditions in electricity supply have also been severely hampering activity in a few other countries Comoros, Madagascar, Nigeria and Zambia”


The IMF noted that the recent depreciation of some currencies on the continent would increase the value in local currency of dollar-denominated liabilities, and hence the debt service burden for Countries not protected  by Financial hedging.

The IMF also stated that despite substantial investment efforts throughout Africa, infrastructure bottlenecks will still be an impediment to attracting new activities and fostering trade integration.  These bottlenecks, it pointed out, have come to the forefront even more acutely recently for a wide range of countries.

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By Omolara Adegoke

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