Business & Strategy

IMF Urges Caution on Proposed CBN Act Amendments, Recommends Strengthening Apex Bank

Written by Jerry Alomatu on May 10, 2024

News Views: 68

The International Monetary Fund (IMF) has advised the Federal Government against the proposed amendments to the Act establishing the Central Bank of Nigeria (CBN), urging instead the reinforcement of the apex bank’s capabilities.

In its Article IV Staff Consultation Report released in Washington yesterday, the IMF emphasized the importance of enhancing central bank independence and communication to facilitate a successful transition towards an inflation targeting regime. It cautioned against amendments that could potentially undermine the autonomy of the CBN.

The report commended the authorities for their efforts to increase the minimum capital for banks and urged the CBN to phase out regulatory forbearance introduced during the pandemic period. Furthermore, the IMF lauded the resumption of the cash transfer program and urged its expansion to address acute food insecurity.

Nigeria’s recent reform initiatives, including the removal of foreign exchange market distortions, were acknowledged by the IMF. The report highlighted the need for continued improvements in the functioning of the foreign exchange market, along with the adoption of a well-designed intervention framework.

The Executive Board of the IMF conducted an Article IV consultation with Nigeria on the 29th of last month, following discussions with the authorities held between February 12–23, 2024, in Lagos and Abuja. The report noted Nigeria’s ambitious reform agenda aimed at restoring macroeconomic stability and fostering inclusive growth.

However, the IMF underscored near-term risks and emphasized the importance of steadfast reforms to address macroeconomic challenges, reduce poverty, and support social cohesion. Mobilizing revenue, reprioritizing expenditure, and phasing out regressive energy subsidies were identified as critical steps to create fiscal space for development spending and strengthen social protection.

The report also highlighted the significance of reforms to enhance the business environment, improve security, implement governance measures, develop human capital, boost agricultural productivity, and build climate resilience. These reforms, according to the IMF, are essential to bolster investor confidence, unlock Nigeria’s growth potential, diversify the economy, address food insecurity, and promote sustainable job creation.

In its growth forecast for Nigeria’s economy in 2024, the IMF maintained a projection of 3.3%, citing an anticipated pickup in services and trade sectors. However, it cautioned that food price inflation, which stood at 40% in March, poses significant food security concerns. The Fund emphasized the need for sustained efforts to raise growth levels and improve living standards for Nigerians.

On monetary policy, the IMF welcomed the recent interest rate hikes by the CBN to tackle inflation but advised a data-driven approach for further rate adjustments. It recommended building foreign exchange reserves and advocated for a transparent and balanced framework for forex interventions aimed at mitigating excessive short-term volatility.