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The International Monetary Fund (IMF) has strongly advised the Central Bank of Nigeria (CBN) to phase out the regulatory forbearance granted to Deposit Money Banks during the COVID-19 pandemic. Additionally, it cautioned against proposed amendments to the Act establishing the apex bank, stressing the importance of preserving the central bank’s autonomy.
The IMF’s stance was articulated in the Article IV Staff Consultation Report of the Board of Governors, released on Thursday in Washington DC, United States.
While specifics on the waivers granted to the banks were not provided, the IMF underscored the need for vigilant monitoring of financial institutions to mitigate sector risks.
The report stated, “Directors emphasized 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.”
The IMF highlighted concerns regarding the legal and operational framework surrounding monetary policy in Nigeria, advocating for its reinforcement. It expressed unease over the lack of a clear hierarchy among the objectives of the CBN, compounded by the inclusion of government representatives on the Board of Directors and potentially the Monetary Policy Committee, as outlined in the 2007 CBN Act.
According to the IMF, this situation undermines the effectiveness of monetary policy operations and introduces ambiguity in terms of public accountability.
Furthermore, the IMF stressed the need to modernize the 2007 CBN Act in alignment with recommendations from the 2021 Safeguards Assessment. This includes enshrining the primacy of price stability, enhancing central bank autonomy, and strengthening governance arrangements to reduce reliance on monetary financing of the fiscal deficit.
The report highlighted, “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.”
While commending the authorities for restarting the cash transfer program, the IMF emphasized the urgency of scaling it up to alleviate acute food insecurity. It also endorsed efforts to develop a comprehensive revenue mobilization strategy, including enhancing tax enforcement and expanding the tax base.
In terms of monetary policy, the IMF advocated for maintaining a tight stance to curb inflation, ensuring exchange rate flexibility, and bolstering reserves. It welcomed initiatives to eliminate distortions in the foreign exchange market and encouraged further enhancements to its functionality.
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