Muoghalu who gave this advice in Abuja while presenting a lecture, however said the option should be subjected to a thorough analysis by experts, as opposed to any knee-jerk action or uninformed public opinion.
Nigeria is currently going through forex illiquidity which has place a huge pressure on the local currency, forcing it to depreciate significantly against international currencies.
The proposal by Muoghalu is to help the nation shore up its forex and stabilise the forex market.
He said while there is typically a strong emotional and substantive argument against this approach in the country, it has clear pros and cons. According to him, “Regarding the pros, a substantive IMF facility (it would have no impact if it is not a big package) would markedly increase forex liquidity and our forex reserves in a more transparent manner.
“It will improve investor sentiment and attract a marked increase in foreign investment because of the confidence it will give investors, all of which will further stabilize the forex market while we pursue more fundamental and structural changes.”
He said it will also impose more fiscal discipline in the country’s fiscal management. “In any case, the reforms (removal of subsidies) really are part of the Bretton Wood template. Why take all the pain that is creating anger, without the gain of robust inflows and improved investor sentiment?” he said.
The former deputy governor of the Central Bank of Nigeria (CBN), said a major critique of IMF programs is that they do not solve the longer-term problems of borrowing countries, although they are helpful in the short to medium term if and when the program is implemented in full.
In his words, “The experiences of Ghana and Sri-Lanka demonstrate the limitations of IMF programs. Both countries have borrowed from the IMF 17 times and 16 times respectively. Both have continued to experience economic crises in recent years. Perhaps one response to this dilemma is that the responsibility for any country’s economic transformation remains the country’s, not that of the IMF.
“Countries should plan well ahead of stabilization packages that create temporary relief. Another major risk of IMF borrowing is the debt sustainability challenge it can create. This is relevant to an already debt stressed country such as Nigeria. A default on an IMF loan will create a negative credit rating and restrict opportunities for future access to financing. IMF loans also affect a country’s sovereignty by dictating in reality economic policies and choices of borrowing countries.”
Nigeria is already bogged down by a huge debt overhang, of which the CBN Governor, Mr. Yemi Cardoso recently warned that Nigeria is at a high risk of falling into debt distress and urged the federal government to look for ways of improving revenue generation.