IMF Endorses Nigeria’s Tight Monetary Policies, Cautions Against Weakening CBN Autonomy

The International Monetary Fund (IMF) has endorsed some of the tight monetary policies of the Central Bank of Nigeria (CBN), which are part of its reforms, and recommended caution on amendment of the CBN Act in order not to weaken the apex bank’s autonomy.

The endorsement was part of the multilateral lender’s recommendations on Nigeria in its Article IV Consultation report.

Relatedly, Chairman of the Senate Committee on National Security and Intelligence, Senator Shehu Buba, justified the proposed implementation of the cybersecurity levy by the CBN.

IMF Assistant Director of the African Department and Mission Chief to Nigeria, Axel Schimmelpfennig, at a virtual press briefing, on Thursday, unveiled the position of the IMF Executive Directors at the end of the Article IV Consultation on Nigeria.

According to Schimmelpfennig, the IMF Executive Directors stated, “Following monetary policy tightening in February and March 2024 and a resumption of FX interventions, the naira has started to stabilise.”

While welcoming what they described as the bold reforms implemented by the President Bola Tinubu administration, the IMF executive directors commended the authorities’ focus on revenue mobilisation, governance, social safety nets, and upgrading policy frameworks in the face of Nigeria’s significant economic and social challenges.

The report said, “In view of the downside risks, directors stressed the importance of steadfast, well sequenced, and well communicated reforms to restore macroeconomic stability, reduce poverty, support social cohesion, and pave the way for faster, inclusive, and resilient growth.

“Directors commended the authorities’ actions to rein in inflation and restore market confidence. They stressed the importance of keeping a tight monetary policy stance to put inflation on a downward path, maintaining exchange rate flexibility, and building reserves.

“Directors welcomed the removal of foreign exchange market distortions and encouraged the authorities to continue improving the functioning of the FX market, including by adopting a well designed FX intervention framework.

“Some directors also noted that carefully and sequentially phasing out capital flow management measures when warranted would be important.”

The IMF directors also supported the Nigerian authorities’ intentions to shift to an inflation-targeting regime and recommended strengthening central bank independence and communication to ensure a successful transition.

The report stated. “They recommended caution regarding amendments to the Central Bank of Nigeria (CBN) Act that might weaken the central bank’s autonomy. They encouraged further progress in implementing the outstanding recommendations from the 2021 safeguards assessment.

“Directors commended the authorities for restarting the cash transfer programme and emphasised the urgency of scaling it up to mitigate acute food insecurity. They welcomed the authorities’ work on a comprehensive revenue mobilisation strategy, including boosting tax enforcement and broadening the tax base.

“They underscored that mobilising revenue and reprioritising expenditure, including phasing out costly and regressive energy subsidies, are critical to creating fiscal space for development spending and strengthening social protection, while maintaining debt sustainability.

“Directors appreciated the authorities’ commitment to discontinue deficit monetisation and positively noted progress in macroeconomic policy coordination.”

Schimmelpfennig said the directors emphasised the importance of close monitoring of financial sector risks, and added that they supported the increase in the minimum capital for banks, and urged the CBN to unwind the regulatory forbearance introduced during the pandemic.

The directors further acknowledged Nigeria’s recent improvements in the AML/CFT framework and called for sustained action to exit the Financial Action Task Force (FATF) grey list.

Schimmelpfennig said the directors equally supported the authorities’ efforts to foster financial inclusion and deepen the capital market.

The IMF Mission Chief expressed optimism regarding the country’s economic reforms, highlighting their potential for inclusive growth.

Schimmelpfennig commended the authorities for their determination to address distortions and bottlenecks hindering economic progress.

While acknowledging the challenges faced by Nigerians amid ongoing reforms, he emphasised the importance of providing support to the vulnerable as well as revitalising growth and job creation.

He stressed the need for a well-sequenced approach to reforms, particularly in scaling up social support systems to alleviate the current cost of living crisis.

The IMF chief alluded to the government’s determination to push ahead with reforms to address distortions and bottlenecks that have been built up over the years, and are holding back Nigeria and Nigerians from reaching their economic potential.

He stated, “We appreciate that, there’s a lot of pain for Nigerians right now. And our policy advice aims to provide support to those in need, while also reinvigorating growth and job creation.

“And in that regard, we put a lot of emphasis on the sequencing of reforms in our report, to ensure that the most vulnerable are protected and can navigate the economic situation as it is.

“And specifically, we are encouraged that the cash transfer system and other social support systems are now implemented and we emphasise that it’s very important to scale those up urgently to help Nigerians manage the ongoing cost of living crisis.

“But we think it is also worth highlighting the upside, which is the authorities are working on a comprehensive economic reform program to accelerate growth implementing that in a well sequence manner we do see has the potential of raising growth and making it more inclusive.”

On the recent monetary policy reforms, Schimmelpfennig said, “We welcome the central bank’s commitment to bringing down inflation. Inflation does hurt the poor disproportionately, they are the ones that are least able to impact that.

“With that in mind, we think that the decision by the Monetary Policy Committee in February and March to raise the policy rate combined with steps to tighten market liquidity is appropriate to address inflation. That really is a high priority to reduce the cost-of-living crisis that Nigerians are facing.

“We also welcome the steps by the central bank to introduce a willing buyer willing seller principle in the foreign exchange market. As I said, if you kind of think back, trying to keep the naira artificially at an artificial level meant that many people just didn’t have access to dollars or you had to turn to a parallel market, which had a huge premium of 60 percent at times.”

Responding to a question on the controversial cybersecurity levy, IMF Resident Representative to Nigeria, Christian Ebeke, said, “Cybersecurity is a macro critical issue, so it is something that has to be taken very seriously because of the potential financial instability, and repercussions of cybersecurity attacks on the financial sector.

“So, this is an issue that we take very seriously at the IMF and, in fact, our latest global financial stability report published in April a few weeks ago highlighted the importance of designing adequate frameworks and adequate regulation really to tackle cybersecurity.

“In the case of Nigeria, my understanding from just a few minutes ago is that yet to be confirmed by you, but we understand that the House of Representatives voted the motion to pause the implementation of this cybersecurity levy that was part of the Cyber Crime Act that was just adopted also, lately.

“So, we have not discussed this particular issue with the authorities, but as I mentioned, it is very serious and we encourage the authorities to work towards having an adequate framework around cybersecurity, and more generally designing something robust and sufficiently efficient to tackle this very important issue for the financial sector.”

Chuks Okocha, Ndubuisi Francis, Adedayo Akinwale, Alex Enumah, Sunday Aborisade, Nume Ekeghe and Dike Onwuamaeze

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