A former deputy governor of the Central Bank of Nigeria (CBN), Kingsley Moghalu has urged the International Monetary Fund (IMF) to assist the political leaders of natural resource-dependent African countries create risk management devices such as “hedging” contracts that would counter the negative macroeconomic effects of commodity price fluctuations by locking in oil price sales at specific prices.
Moghalu made the recommendation at a conference that reviewed the latest IMF Africa Regional Economic Outlook report, released in October 2016, according to allafrica.com.
The Institute for International Economic Policy at George Washington University’s Elliot School of International Affairs hosted the conference recently. Moghalu, who spoke on “Exchange Rate Regimes in Sub-Saharan Africa: Experiences and Lessons,” drew a number of conclusions as lessons from plummeting commodity prices for resource-intensive African countries. He said these lessons included “the importance of the right kind of economic diversification which must be based on competitive advantage rather than comparative advantage, and having the right policy responses while addressing the countervailing political considerations that often prevent appropriate policy responses.”
The former central banker said other lessons from the ongoing macroeconomic crisis in commodity-dependent African countries included the need to build deeper economic policymaking competence, reinvigorate the independence of key economic institutions such as central banks to prevent politically motivated but erroneous policy choices, and technical support for risk management devices such as hedging, and savings funds.
“The truth is that the fundamental problems of macroeconomic management in Africa often come from political economy factors”, Moghalu told the conference.
“The IMF needs to focus on this challenge and find a way to engage directly with heads of government with advice on the real macroeconomic consequences of certain political decisions”.