The International Monetary Fund, IMF, Wednesday, said the Nigerian currency, the Naira, is overvalued to the tune of 10 to 20 per cent.
Gene Leon, IMF mission chief for Nigeria, made this known in a separate telephone media briefing Wednesday afternoon.
Reuters news agency quoted Mr. Leon as saying that the naira overvaluation is “somewhere to the tune of 10 to 20 per cent.”
Additionally, the IMF boss disclosed that Nigeria’s 2017 projections for non-oil revenues are more optimistic than the IMF’s, and authorities need to increase tax levels to diversify its income.
The Washington-based agency had earlier warned Nigeria that its economy needs urgent reform.
A document, whose earlier version was obtained by Reuters last month, outlines a raft of failings in Nigeria’s handling of its economy and could affect talks over at least $1.4 billion in international loans.
Nigeria fell into recession in 2016, its first in 25 years, largely due to the impact of low oil prices and militant attacks on energy facilities in the Niger Delta region.
For Africa’s largest economy, crude sales account for more than 90 percent of foreign exchange earnings and two-thirds of government revenue.
The IMF Staff country report, which was unveiled on Wednesday also showed that Nigeria’s multiple devaluation between 2014 and 2016, affected the private sector, especially the banks.
“During the past year, banking sector growth was dominated by the impact of a depreciating naira, given 45 percent of the banks’ loan book is in foreign currency,” the IMF staff report read.
“The depreciation of the naira may in some cases benefit those banks with FX assets that outweigh their FX obligations, through net valuation gain.
“However, FX risks either from a shortage of FX or further naira depreciation could also lead to defaults, which will increase required provisioning and reduce profits.
“With about 45 percent of loans and 40 percent of NPLs in foreign currency, a further depreciation of the naira by 50 percent would increase NPLs net of provisions to capital by 12 percentage point (from 28 to 40 percent)”.