The International Monetary Fund (IMF)  has advised emerging economies including Nigeria to allow their currencies to depreciate in response to tighter funding conditions and an imminent policy tightening by the Federal Reserve Bank of the United States.

The Washington-based lender also counselled the Central Bank of Nigeria and the apex banks of emerging economies to raise their benchmark interest rate in preparation for the Fed policy tightening.

The IMF disclosed this in a blogpost titled, ‘Emerging Economies Must Prepare for Fed Policy Tightening,’ on Monday.

According to the fund, while changes in the global economic outlook appear positive, especially in the United States, these changes are uncertain for emerging markets.

It noted that emerging markets with high public and private debts, foreign exchange exposures, and lower current-account balances had been seeing larger movements of their currencies relative to the US dollar in recent months.

As a result, the IMF said the combination of slower growth and elevated vulnerabilities could create adverse feedback loops for the emerging economies.

It said, “Some emerging markets have already started to adjust monetary policy and are preparing to scale back fiscal support to address rising debt and inflation.

“In response to tighter funding conditions, emerging markets should tailor their response based on their circumstances and vulnerabilities. Those with policy credibility on containing inflation can tighten monetary policy more gradually, while others with stronger inflation pressures or weaker institutions must act swiftly and comprehensively.

“In either case, responses should include letting currencies depreciate and raising benchmark interest rates. If faced with disorderly conditions in foreign exchange markets, central banks with sufficient reserves can intervene provided this intervention does not substitute for warranted macroeconomic adjustment.

“Nevertheless, such actions can pose difficult choices for emerging markets as they trade off supporting a weak domestic economy with safeguarding price and external stability. Similarly, extending support to businesses beyond existing measures may increase credit risks and weaken the longer-term health of financial institutions by delaying the recognition of losses. And rolling back those measures could further tighten financial conditions, weakening the recovery.”

The IMF said that to manage the tradeoffs, emerging economies must take steps to strengthen policy frameworks and reduce vulnerabilities now.

It added that central banks needed to be clear and consistent in communicating its tightening measures to contain inflation pressures in order to enhance the public’s understanding of the need to pursue price stability.

According to it, countries with high levels of debt denominated in foreign currencies must try to reduce it and hedge its exposures where feasible, and while reducing rollover risks, the maturity of obligations should be extended even if it increases costs.

The IMF said heavily indebted countries might need to start fiscal adjustment sooner and faster.

It added that emerging economies were currently battling elevated inflation rates, and high public debt profiles.

It said, “Beyond these immediate measures, fiscal policy can help build resilience to shocks. Setting a credible commitment to a medium-term fiscal strategy would help boost investor confidence and regain room for fiscal support in a downturn.

“Such a strategy could include announcing a comprehensive plan to gradually increase tax revenues, improve spending efficiency, or implement structural fiscal reforms such as pension and subsidy overhauls.”

The Washington-based lender said the average gross government debt in emerging markets was up by almost 10 per cent since 2019, reaching an estimated 64 per cent of Gross Domestic Product by the end of 2021, with large variations across countries.

FDI into Telecoms Sector Plummet by 70 Per Cent

Foreign capital flows into the Nigerian telecommunications sector shrank by 70.5 per cent to $107.46m in nine months last year, compared to the same period of 2020.

Data obtained from the National Bureau of Statistics’(NBS) reports on capital importation showed that the foreign capital inflows stood at $364.3m from January to September 2020.

According to the NBS, capital importation data is obtained from the Central Bank of Nigeria and is inclusive of imported physical capital, such as equipment, and financial capital importation.

It added that capital importation is divided into three main investment categories: foreign direct investment, portfolio investment, and other investments.

Capital importation into the telecoms sector fell from $157.48m in first quarter of 2020 to $105.64m in Q2 and $101.18m in Q3.

In Q1 2021, foreign capital flows into the sector plunged from $56.28m in Q1 2021 to $0.34m in Q2 but rose to $50.84m in Q3.

Isa Pantami,inister of Communications and Digital Economy recently described the Information Communication Technology sector as an important catalyst for the diversification and growth of the economy, according to Punch

Going by recent developments in the sector, capital inflow is expected to increase as investments are directed towards increasing broadband penetration in the country.

MTN recently committed to invest N640bn (about $1.5bn) over the next three years to expand broadband access in Nigeria.

The Nigerian Communications Commission (NCC) auctioned in December two of its available lots of 100 MHz TDD slots of 3.5 GHz band for the deployment of fifth-generation network for $547m.

According to the Global System for Mobile Communications Association, $500m and 6000 base stations will be needed for 5G rollout in 10 cities in Nigeria, driving the inflow of capital into the sector.

A source in the Association of Licensed Telecommunication Operators of Nigeria (ALTON) blamed the fall in capital inflows on the scarcity of foreign exchange, and government policy.

The source said, “Lack of forex has impacted on how we can import equipment into the country. This has reduced investments too. There is also the issue of end-user certificate. Because for us to import some equipment into the country, we need the certification of the security agencies, especially the National Security Adviser’s office.