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After naira falls again, government raises debt ceiling

Despite differences with the IMF over devaluation, market expects further weakening of currency and more borrowing

Although central bank governor Godwin Emefiele is holding to the line that a formal devaluation of the naira is unnecessary – traders claim it is overvalued by as much as 18% – downward pressure on currency is intensifying.

Emefiele's biggest fear is that such a move would stoke inflation, at 15.8% in December, in the country's import-dependent economy. Although local production of staples such as rice and sugar had been increasing, farming and transport have been set back by the coronavirus and insecurity across the north and the Middle Belt over the past year.

The revival of the devaluation argument coincides with the IMF's latest Article IV consultation with Nigeria in which it urges liberalisation of the foreign exchange regime and a phased reduction of the budget deficit. It also warned the country would have to step up its vaccination programme to engineer an economic recovery after the battering of the pandemic.

It is unlikely that Nigeria will apply for a further mega-loan from the IMF, which would include far tougher conditions that the one it took at the start of the pandemic. But the country will be borrowing more from others, including private lenders.

Abuja's Debt Management Office has raised the ceiling for borrowing to 40% of gross domestic product from 25%. More critical for the government is the percentage that debt-servicing takes out of state revenues: last year it ballooned to over 90%, the IMF reports, although it is projected to fall to just 60% this year before going back up over 90% by 2025 (AC Vol 61 No 25, Unbalancing the books & Vol 61 No 19, Buhari goes to the market).

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