As if the suffering is not enough, the International Monetary Fund (IMF), has called on Nigeria to further devalue the Naira in order to protect the country from potential harm during trying time for the economy.
The IMF, after concluding the Article IV consultation 1 with Nigeria last week, pointed that vulnerabilities remain high in view of the uncertainties about oil price, security, and the political situation.
The IMF board also suggested that additional policy adjustments and broader structural reforms will be necessary in the period ahead to reconstitute buffers, mitigate risks, and meet pressing development needs.
But if Nigeria agrees to devalue the Naira further, the general effects would include: increase shopping costs for international buyers; rise in airfares for major international routes; increase in the cost of imported products; increase to the cost of goods and services.
Others are greater difficulty in paying external debts; while investors would require higher returns to compensate for the inflation.
The Central Bank of Nigeria (CBN) may also raise interest rates to fight off inflation.
The only people that may remain safer from the Naira devaluation action are the ones who held on to assets rather than the Naira.
People who have houses, lands, stocks, domiciliary accounts, foreign bank accounts and so on are the ones who would hardly feel the pain of Naira devaluation
IMF directors however agreed that tightening fiscal policy and allowing the exchange rate to run down while using some of the reserve buffer were befitting to address the recent fall in oil prices.
“Nonetheless, Directors stressed that achieving the authorities’ fiscal targets will require a careful prioritization of public spending and a cautious implementation of capital projects.”
They also emphasised the importance of better budgeting at both the state and local government levels to enable better management of fiscal adjustment.
IMF said directors agreed that mobilizing extra non-oil revenues is required to open up fiscal space and improve public service delivery over the medium term.
They also expressed enthusiasm towards ongoing initiatives to strengthen tax administration, and encouraged the authorities to keep social development in check.
“Furthermore, Directors saw merit in reviewing the current revenue sharing arrangements to help address regional disparities over the longer term and ensure that social and development needs are addressed.”
IMF said its directors welcomed the recent merger of the foreign exchange rates, better exchange rate flexibility could help reduce the effect of external shocks.
The International Monetary Fund had said in December last year that it expected Nigeria’s growth rate to slow to about 5 percent in 2015 from 6.1 percent in the third quarter of 2014, due to effect of falling global oil prices on revenues and spending.