WASHINGTON (Reuters) - Monetary policy in Nigeria should be geared toward lowering “stubbornly high” inflation to single digits, a senior International Monetary Fund official said on Wednesday.
IMF mission chief to Nigeria, Scott Rogers, said in a statement after annual talks with the government that the IMF supported the authorities’ plans to cut the fiscal deficit for 2011-13, because it would help shore up falling international reserves and lower inflation.
“This would enable the government to rebuild safety buffers, support an expansion of credit to the private sector, and lower inflation,” Rogers said.
He said 2010 economic growth in sub-Saharan Africa’s second-biggest economy would be “exceptionally high” in 2010 due to a recovery in oil output.
Rogers said the IMF mission supported the central bank’s September decision to raise rates to 6.25 percent, the first increase in more than a year.
He said fiscal policy for all levels of government should be anchored by a strong oil-price rule to align spending with available resources.
“Embedding a well-defined oil price rule in legislation could help maintain fiscal discipline,” he added.
Nigeria’s 2011 budget will be discussed by parliament in two weeks time, Finance Minister Olusegun Aganga said on Wednesday. See story at .
Legislation to create a sovereign wealth fund in which oil profits will be saved will be sent to the National Assembly next week, Aganga added.
Rogers said the IMF team understood government concerns about the stagnation of overall credit to the private sector but noted that slower credit growth was not unexpected “in the aftermath of the unsustainable credit growth driven by equity-related lending.”
Boosting lending to small businesses should be driven through targeted reforms, such as an effective credit risk bureau, better collateral execution and bankruptcy procedures, and improved land tenure system, Rogers added.
The IMF mission chief said it was critical to recapitalize the country’s insolvent banks and return them to private investors as quickly as possible.
Nigeria rescued nine lenders the government judged to be dangerously undercapitalized in a $4 billion bailout last year. Since then, the central bank has been trying to find new investors to help recapitalize them.
Nigeria set up a state-run asset management company, AMCON, to absorb up to $15 billion of bad bank loans.
Rogers said the mission found “substantial progress” is being made in making AMCON operational and strengthening banking supervision.
“The team highlighted the importance of establishing clear criteria for eligible assets and ensuring full transparency and accountability of AMCON’s operations and financial results,” Rogers added.