Last month, the Central Bank of Nigeria (CBN) said Nigerians travelling abroad will no longer be allowed to use debit cards issued to them by commercial banks in the country to access money abroad. According to the CBN, this had become necessary because the banks could no longer access foreign exchange as a result of a general shortage in the country.
Due to the fall in global oil prices, Nigerian crude is currently selling for about $37 a barrel compared with over $100 a barrel about a year ago. This reduced revenue has highly limited the amount of foreign exchange available to the CBN, which in turn has curtailed the amounts it can sell to commercial banks.
Fearful of the effects the CBN measures will have on the economy, Ms Lagarde has paid a four-day working visit to Nigeria to discuss means of preventing a meltdown. Nigeria is one of the world's fastest growing economies, with an average annual gross domestic growth of 7% over the last 15 years.
Ms Lagarde said: “Additional exchange rate flexibility, both up or down, can help soften the impact of external shocks, make output and employment less volatile and help build external reserves. It can also help avoid the need for costly foreign exchange restrictions, which should, in any case, remain temporary.”
After talks with President Muhammadu Buhari, vice president Yemi Osinbajo, finance minister Kemi Adeosun, CBN governor Godwin Emefiele and senate president senator Bukola Saraki, Ms Lagarde also spoke about the government’s proposal to remove Nigeria's fuel subsidy. She said the benefits of fuel subsidy in Nigeria are hugely skewed in favour of the rich at the expense of the poor.
Ms Lagarde added: “The subsidies that are still in place for kerosene and diesel should be targeted at those that need it most. However, research shows that over 70% of subsidies often benefit the rich, while less than 7% benefit the poor.
“Nigeria needs to take hard decisions on debt, expenditure and revenue. Nigeria’s oil revenue should be spent on her people and moving forward, Nigeria should show resilience to grow her economy.”
Pointing out that while Nigeria’s economic diversification is remarkable, Ms Lagarde said the country’s 2016 economic outlook is not high. She lamented terrorism ravaging the northeast zone as capable of constituting a significant threat to Nigerian economic development, adding too that Nigeria must show resolve in the fight against corruption.
“There will probably be financial volatility going forward but IMF is ready to offer technical and other forms of assistance to Nigeria at federal and state levels. Nigeria has a massive footprint in the region as whatever happens in Nigeria will affect her neighbours," Ms Lagarde added.
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