By Lucy Adautin
In a resolute stance, the International Monetary Fund (IMF) has urged the Central Bank of Nigeria (CBN) to unwind the regulatory forbearance extended to Deposit Money Banks amidst the COVID-19 pandemic.
Additionally, the IMF cautioned the Nigerian Government against proposed amendments to the Act establishing the apex bank, stressing the importance of preserving the autonomy of the central bank.
These critical recommendations emerged from the Article IV Staff Consultation Report of the Board of Governors of the IMF, unveiled in Washington DC, United States, underscoring the gravity of the situation.
The fund didn’t give details on the waivers granted to the banks, it emphasised the importance of close monitoring of the institutions for financial sector risks.
The report read, “Directors emphasised the importance of close monitoring of financial sector risks. They supported the increase in the minimum capital for banks and urged the CBN to unwind the regulatory forbearance introduced during the pandemic. Directors acknowledged the recent improvements in the AML/CFT framework and called for sustained action to exit the FATF grey list. They supported the authorities’ efforts to foster financial inclusion and deepen the capital market.”
The IMF asserts that the legal and operational framework surrounding monetary policy in Nigeria needs fortification.
In a poignant observation, the IMF expressed concern over the lack of a clear hierarchy among the objectives of the CBN. The IMF also highlighted the presence of government representatives on the Board of Directors and potentially the Monetary Policy Committee, as outlined in the 2007 CBN Act.
This organizational structure, according to the IMF, poses challenges to the effectiveness of monetary policy operations and introduces ambiguity regarding public accountability.
Furthermore, the IMF emphasized the urgent need to modernize the 2007 CBN Act, aligning it with recommendations from the 2021 Safeguards Assessment. This modernization effort aims to reinforce the primacy of price stability, enhance central bank autonomy, and fortify governance arrangements.
Of notable concern is the heavy reliance on monetary financing of the fiscal deficit, a practice that warrants careful reconsideration in the quest for economic stability and sustainability.
The report read in part, “Directors supported the authorities’ intentions to shift to an inflation targeting regime and recommended strengthening central bank independence and communication to ensure a successful transition.
“They recommended caution regarding amendments to the Central Bank of Nigeria 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 mobilization strategy including boosting tax enforcement and broadening the tax base.
“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.”
