The International Monetary Fund (IMF) has advised the Federal Government to reconsider the proposed amendment to the Central Bank of Nigeria (CBN) Act, advocating instead for measures to strengthen the central bank.
The position of the Fund was contained in the Article IV Staff Consultation Report of the Board of Governors of the global organization, which was released in Washington, yesterday.
It stated: “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 (CBN) Act that might weaken the central bank’s autonomy.
“They supported the increase in the minimum capital for banks and urged CBN to unwind the regulatory forbearance introduced during the pandemic.
“Directors commended the authorities for restarting the cash transfer program and emphasized 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 (FX) market distortions and encouraged the authorities to continue improving the functioning of the FX market, including adoption of a well-designed FX intervention framework.”
The Executive Board of the IMF met on the 29th of last month to conclude the Article IV consultation with Nigeria, following the Staff Report of their mission to the country where they held discussions with the authorities between February 12–23, 2024, in Lagos and Abuja.
According to the Fund, Nigeria under its new administration has set out on an ambitious reform path to restore macroeconomic stability and support inclusive growth.
“The authorities reformed the fuel price subsidies, unified official foreign exchange windows, and are focused on revenue mobilization, governance, and enhancing the monetary and exchange rate policy frameworks, as well as strengthening social safety nets,” it stated.
However, the board said, “Near-term risks are tilted to the downside,” but stressed a “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.”
The report noted that mobilizing revenue and reprioritizing expenditure, including phasing out costly and regressive energy subsidies, were critical to creating fiscal space for development spending and strengthening social protection, while maintaining debt sustainability.
They also highlighted the importance of reforms to enhance the business environment, improve security, implement key governance measures, develop human capital, boost agricultural productivity, and build climate resilience.
“These reforms are crucial to boost investor confidence, unlock Nigeria’s growth potential and diversify the economy, address food insecurity, and underpin sustainable job creation,” the report said.
Keeps Nigeria’s 2024 growth forecast at 3.3%
Meanwhile, the IMF, also yesterday, maintained its growth forecast of 3.3% for Nigeria’s economy for 2024, up from 2.9% last year, citing a pickup in services and trade sectors.
“The growth outlook remains challenging with food price inflation at 40% in March, raising food security concern. If Nigeria grows at 3.3% that is just above the population dynamics, which is a big challenge,” IMF Mission Chief for Nigeria, Axel Schimmelpfenning, told journalists.
The Fund forecast that fuel subsidies could cost up to 3% of GDP this year as the increases in pump prices have not kept up with their dollar cost, adding that the federal government remains committed to phasing that out in another one or two years.
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He stated further: “The reforms are focused on how to raise that growth so that Nigerians can see real impacts on their living standards.
“We think a lot has happened. We also have to recognise that the problems built up over many years were quite severe. We can’t expect that everything is going to be resolved overnight.”
Schimmelpfenning said scaling up a cash transfer programme and boosting government revenues so that the country has more resources to provide services to its citizens is a key priority.
On monetary policy, the IMF welcomed the Central Bank of Nigeria’s (CBN) recent interest rate hikes to curb galloping inflation, calling for a data-driven approach to further rate tightening. The IMF urged the CBN to build up its foreign exchange reserves and recommended a transparent and balanced framework for forex interventions aimed solely at smoothing out excessive short-term volatility.
