FX CRISIS: A $30 BILLION IMF STABILIZATION FUND IS PROPOSED BY AN EX-CBN DEPUTY GOVERNOR

To address the ongoing foreign exchange (FX) crisis, former deputy governor of the Central Bank of Nigeria (CBN) Kingsley Moghalu has suggested a $20–30 billion IMF stabilization fund.

In his keynote address, “Nigeria's Distressed Economy: Which Way Forward？,” given on Tuesday at the Leadership Newspaper Group 2024 conference and awards in Abuja, he stated that “the FGN must very carefully consider whether it should take a formal stabilization package of $20–30 billion from the International Monetary Fund to get out of Nigeria's foreign exchange crisis.”

He stated that rather than a hasty decision or ignorant popular opinion, this choice should be the subject of a careful examination by specialists. He claims that this strategy has distinct advantages and disadvantages, despite the fact that there is usually a robust, substantive, and highly emotional debate against it in the nation.

On the plus side, he claimed that a sizable IMF facility would significantly boost foreign exchange liquidity and make Nigeria's foreign reserves more transparent (albeit it wouldn't matter if it wasn't a large package).

As the chairman of the board of directors and advisory board of the Africa Private Sector Summit (APSS), Moghalu is confident that the event will boost investor confidence and draw a significant amount of foreign investment. This will help to stabilize the currency market as the nation pursues more fundamental and structural changes.

It will also force the nation's fiscal management to exercise greater restraint. In any event, the Bretton Wood blueprint includes the changes (removal of subsidies). He asked, “Why take on all the suffering that is inciting resentment when there are strong inflows and improved investor sentiment to gain？”

Regarding the drawbacks, he stated that a significant criticism of IMF programs is that, if and when they are fully implemented, they do not address the longer-term issues facing borrowing nations, despite their potential benefits in the near to medium term.

The former deputy governor of the CBN claimed that the experiences of Sri Lanka and Ghana show the shortcomings of IMF programs, pointing out that both have borrowed from the IMF 17 and 16 times, respectively, and have both recently continued to face economic challenges.

Maybe one way to address this conundrum is to remind people that it is the country's, not the IMF's, obligation to develop its economy. Planning ahead is essential for stabilizing packages that provide short-term assistance.

He noted that one significant concern associated with IMF borrowing was the potential difficulty of debt sustainability. This is pertinent to Nigeria, a nation already burdened by debt. A default on an IMF loan will damage one's credit report and limit one's ability to obtain finance in the future. According to him, IMF loans also have an impact on a nation's sovereignty since they actually dictate the economic policies and borrowing nations' choices.

As of March 5, 2024, the IMF's overall loan portfolio was $112.8 billion.

The largest loan package from the Fund, totaling $57.1 billion and distributed over three years, was given to Argentina in 2018.

When Argentina applied to the IMF, it was experiencing a crisis akin to that of Nigeria at the time. The South American nation was experiencing severe shortages of dollars, double-digit inflation, and a run on its peso currency.

Moghalu stated that the CBN must show that it is prepared to take strong action against the forex speculation occurring in Nigeria's banking industry, in addition to the present measures the bank is taking.

It is insufficient to concentrate only on peer-to-peer (P2P) cryptocurrency platforms like Binance, which lack political influence in Nigeria. To take action against banks and bankers who commit mistakes, the central bank needs the political will of a regulator. It will surely clear people's minds and enhance the forex situation to provide instances of a few confirmed occurrences of forex hoarding.

He pointed out that during the global financial crisis, the CBN, led by Sanusi Lamido Sanusi, (during which I held the position of deputy governor), bravely and effectively combated corruption in the banking industry. He argued that this strategy saved Nigeria's banking industry and, by extension, the country's economy.