The International Monetary Fund (IMF) has noted that improving trade balance is having a limited impact on Foreign Exchange (FX) strains with the exchange rate premiums at the parallel market staying in the 35-40% range since October 2021.
This was disclosed in the IMF staff meetings with the Nigerian authorities from June 6-10, 2022, to discuss recent economic and financial developments and the economic outlook for the country.
On Wednesday, exchange rate between the naira and the US dollar closed at N420/$1 at the Investors and Exporters (I&E) window. However, the black market maintains a wide premium to closed at N607/$1, according to information from BDC operators.
The IMF noted that real GDP growth is broadening to all sectors except oil, but inflation remains elevated. The international lenders added that the economic outlook is challenging with high food prices raising food security concerns.
“Regarding the external sector, the current account deficit narrowed significantly in 2021 helped by import compression and higher net oil balance. However, the improving trade balance, which has continued so far in 2022, is having a limited impact on Foreign Exchange (FX) strains with the exchange rate premiums in the parallel market staying in the 35-40 percent range since October 2021,” IMF said.
“Despite supportive oil prices, gross FX reserves fell to $38.6 billion at end-May 2022, having reached $41.5 billion in September 2021 boosted by SDR allocation and Eurobond issuance.” IMF said
The Bretton Woods institution also remarked on Nigeria’s inflationary pressures and the Central Bank of Nigeria’s response. IMF said, “Inflation has reached 17.7% (y/y) in May led by a renewed surge in food prices, exacerbated by the war in Ukraine, and raising food security concerns as over 40% of the population live below the poverty line. To contain inflationary pressures, the Central Bank of Nigeria has recently hiked its monetary policy rate by 150 basis points to 13%.
IMF stated that the economic recovery continues to gain strength on the back of services and agriculture with GDP growth reaching 3.6% (y/y) in Q1 2022.