London, UK | – Nigeria’s Central Bank (CBN) should allow the ‘’Naira’’ local currency to devalue as part of a package of aggressive economic policies to reverse the impact of low oil prices on Africa’s biggest economy, the International Monetary Fund said Wednesday.
The IMF said Nigeria’s economy would grow by 4.9% in 2017 from 3.2% this year as long as the government takes immediate action to cut spending and better manage the naira, its national currency.
Traders have turned against the naira as global oil prices have plummeted, betting that Africa’s top crude producer would struggle to replace the revenue it uses to fund 80% of its budget.
According to Capital Economics, the naira has lost 32% of its value against the U.S. dollar since the start of the year, but the central bank hasn’t taken steps to devalue the currency.
“Foreign exchange restrictions introduced by the Central Bank of Nigeria (CBN) to protect reserves have impacted significantly segments of the private sector that depend on an adequate supply of foreign currencies,” the IMF said in a statement.
“As part of a credible package of policies, the exchange rate should be allowed to reflect market forces more and restrictions on access to foreign exchange removed,” it added.
Nigeria, a key oil exporter, has seen its economy take a massive blow from low oil prices, with the IMF estimating that the country has lost some 40% of its exports.
“With oil prices expected to remain low for a long time, continuing risk aversion by international investors, and downside risks in the global economy, the outlook remains challenging,” the IMF said.