London  — The International Monetary Fund (IMF) said on Thursday it was concerned by Nigeria's move to renew fuel subsidies and urged the government to continue efforts to unify its exchange rates.

Africa's largest oil exporter, which still has to import almost all its fuel needs due to lack of refining capacity, said  it had ended costly fuel subsidies in 2020.

It also has multiple naira rates running in parallel that were put in place during a 2016 oil price crash to avoid a big devaluation but which have underpinned an unofficial exchange market.

“The mission (IMF team) expressed its concern with the resurgence of fuel subsidies,” the IMF team, lead by  Jesmin Rahman, said in a statement after virtual meetings with the Nigerian authorities.

“The Nigerian economy has started to gradually recover from the negative effects of the Covid-19 global pandemic. After sharp output contractions in the second and third quarters, GDP growth turned positive in the fourth quarter of 2020 and growth reached 0.5% year on year in the first quarter of 2021, supported by agriculture and services sectors. Nevertheless, the employment level continues to fall dramatically and, together with other socioeconomic indicators, is far below pre-pandemic levels. Inflation slightly decelerated in May but remained elevated at 17.9%, owing to high food price inflation.

“Tax revenue collections are gradually recovering but, with fuel subsidies resurfacing, additional spending for Covid-19 vaccines, and to address security challenges, the fiscal deficit of the government is expected to remain elevated at 5.5%  of GDP. 

“The mission recommended maintaining the momentum towards fully unifying all exchange rate windows and establishing a market-clearing exchange rate,” it added.

The country's central bank has recently been letting the currency's official value gradually weaken in an apparent move to allow it to converge with what is known as the Nafex rate, a market-determined rate for investors and exporters.

The IMF's comments come after the World Bank this week said the central bank's management of the foreign exchange regime had reduce access to foreign exchange, undermining investor confidence and investment appetite.

The IMF also said in its statement on Thursday that Nigeria's banking industry remained well capitalised with the level of non-performing loans (NPLs) contained.

“Nevertheless, it remains to be seen what share of forborne loans may turn non-performing as the impact of the pandemic abates,” it said, adding that NPLs often rose towards the end of an economic crisis.



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