On Thursday the IMF released a press release on its recent Article IV consultations with the FGN. The short statement, which ends with core macro forecasts through to 2018, calls on the authorities to remove the remaining fx restrictions and multiple currency practices. The Fund is pushing for a unified fx market. There is no mention of the word float in the release, just as there was no mention of the word devaluation in the liberalisation of the fx regime unveiled by the CBN in June 2016.
While we can speculate whether the Fund favours a float, we can say with confidence that the CBN wants no such arrangement (unless it is managed according to its own definition).
The press release acknowledges the recent CBN interventions and its removal of prioritised allocations of fx, while making clear that it would like the authorities to go much further. The CBN, in contrast, is pleased with the appreciation of the naira on the parallel market and likely to continue providing liquidity to the fx market. An external observer might conclude that, since the CBN’s daily sales at the interbank rate are now a small part of overall fx turnover, the unmentionable adjustment has taken place.
On the fiscal side, the Fund covers the consolidated public finances rather than those of the FGN, and sees the deficit rising from 4.7% to 5.0% of GDP this year.
In the context of revenue shortfalls, it notes that the FGN’s interest payments amounted to 66% of its total revenue in 2016. When we consider that the 2016 budget projected a ratio of 35.4%, the size of those shortfalls becomes clear.
The Fund calls for an increase in the rate of VAT and excise taxes. The FGN’s focus is to improve VAT coverage. However, when it sees the slow progress on compliance, it might just change its mind on the current rate of 5%. Turning to excise rates, there has been talk within the federal finance ministry of replacing the CBN’s administrative measures covering the 41 banned import items with fiscal measures.
The Fund’s forecasts have very severe import compression last year, and the current account therefore returning to a small surplus in 2016.
In time, we will all have access to the full report on the Article IV consultations, once the FGN has given the go-ahead for its release. The longer document tends to be more revealing and dispense with the platitudes.