The Nigerian Naira has fallen to its weakest level in 10 months at 401 to the dollar at the official I&E window, following rising dollar demand that has put further pressure on the foreign exchange market.

The Nigerian currency continued losing ground as resumed business activity in the country pushed up dollar demand amid a low supply of FX coming in.

The International Monetary Fund this week recommended that the Central Bank of Nigeria establishes a more transparent and market-based exchange rate policy to instil confidence in the market.

The IMF also advised Nigeria to devalue the naira, saying that it is currently overvalued by 18.5% on the official market.

“Staff’s latest estimates suggest an overvaluation of the real effective exchange rate (applied on the current level of the official exchange rate) of 18½ percent, with the external position assessed as substantially weaker than what is consistent with fundamentals and desirable policy settings,” IMF Executive Board, said in its statement after a visit to Nigeria this week.

Nigeria is holding out against such a move, insisting that further devaluation would worsen the economic situation and stoke inflation.

“In the week to come, we expect the Naira to remain stable around 475 to 480 in the parallel market, as the economy continues to face low-dollar supply and high demand for the greenback,” AZA, Africa’s largest non-bank currency broker by trading volume said in its weekly bulletin.

“This rate reflects market realities and the fact the CBN is working hard to maintain its stability, so we do not foresee any further depreciation in the near term. We also expect the I&E rate to slowly converge towards the parallel market rate,” AZA added.

The Fund noted that Nigeria’s long-running policy of a stable exchange rate has produced limited benefits. “The stabilized exchange rate policy, combined with administrative control of imports, has led to periods of real effective exchange rate appreciation interrupted by episodes of forced large adjustments,” it said.

 

In light of high poverty in the country, IMF staff recommended revenue measures that are progressive and efficiency-enhancing, drawing on previous technical assistance recommendations.

These include increasing the VAT rate to at least 10 percent by 2022 and 15 percent by 2025, rationalizing the pioneer status system and other tax exemptions and customs duty waivers, increasing rates for excises, and broadening the base, developing a high-integrity taxpayer register, and improving on-time filing and payment.

They added that a significant increase in non-oil revenue is critical to balance the negative revenue impact of the global decline of demand for oil in the long run.