ABUJA (Reuters) - The head of the International Monetary Fund endorsed Nigeria’s efforts to tackle corruption on Tuesday while saying it needed to reduce its reliance on oil, sharp falls in the price of which have crippled its economy.
After meeting President Muhammadu Buhari, IMF managing director Christine Lagarde also called for greater flexibility in Nigeria’s exchange rate regime, fuelling speculation that a devaluation of the naira may be imminent.
The central bank has resisted calls by investors to devalue the naira, which has been allowed to fall about 20 percent since the start of 2014.
Measures imposed by the central bank to restrict access to foreign exchange have been backed by Buhari. But they have proved to be unpopular with investors and highlighted Nigeria’s dependence on crude oil exports, which account for more than half of state revenues.
The IMF head, who said she was not in Nigeria to negotiate a loan, backed what she called Buhari’s “very important” fight against corruption and said the president’s reform push could have a positive impact across West Africa.
“His determination to bring about transparency and accountability at all levels of the economy were very important agenda items,” Lagarde told reporters at the presidential villa in the capital Abuja.
Buhari was elected in March after campaigning on a promise to clamp down on the endemic corruption that has left many in Africa’s biggest economy mired in poverty despite its enormous energy wealth.
In December he announced a record budget for 2016, forecasting a doubling of the deficit to 2.2 trillion naira ($11 billion) and a tripling of capital expenditure intended to help the country adjust to the downturn in oil, which has lost around two-thirds of its value since mid-2014.
Lagarde, who said a team of IMF economists would visit Nigeria next week to assess whether its borrowing costs were sustainable, told reporters she and Buhari discussed the challenges posed by the falling oil price and the need for fiscal discipline.
“The short-term fiscal situation ... requires that revenue sources be identified in order to compensate the shortfall resulting from the oil price decline,” the IMF head added.
Buhari’s spokesman, Femi Adesina, later said the president’s administration would “enforce regulations to stop financial leakages” and “adopt global best practices in generating more revenue” to mitigate the effects of dwindling oil prices.
“President Buhari said the federal government will welcome the technical support and expertise of the IMF for its plans to diversify the Nigerian economy and further unleash its growth potentials,” said Adesina.
Lagarde also urged more flexibility in monetary policy to allow the country to use its foreign reserves to support the population as the oil price sags.
“Clearly the authorities should not deplete the reserves of the country simply because of rules that would be exceedingly rigid,” she said.
The central bank spent billions of dollars last year defending the naira, failing to halt its slide against the dollar as plunging oil prices weighed on the currency and the broader economy.
Razia Khan, head of Africa research for Standard Chartered bank, said Lagarde’s comments on the naira regime echoed remarks by Buhari last month, and market players were now anticipating a change, potentially at the bank’s next monetary policy committee meeting.
A research note from brokerage Exotix predicted a devaluation of the naira by around 25 percent was imminent.
Additional reporting by Felix Onuah; Writing by Alexis Akwagyiram and James Macharia; Editing by Richard Balmforth