CEM REPORT, FINANCE | The Central Bank of Nigeria (CBN) has been advised to halt further intervention in the private sector.
The International Monetary Fund (IMF) in a statement published recently recommended policies which it claims are measures that will effectively tighten the monetary policy stance of the nation.
Similarly, the IMF also recommend that the CBN also wind down the loans to the federal government.
The international lender explained that the CBN should rather support packaging the loans as bonds which the debt management office claim is in the offing.
“fully sterilize the impact of CBN’s financing of fiscal deficits on money supply”
“continue phasing out CBN’s credit intervention programs, which expanded rapidly during the pandemic to support the economy.”
“The mission welcomed progress in the securitization of the CBN’s existing stock of overdrafts and recommended speedy finalization.”
“Going forward, it would be important to limit reliance on CBN overdrafts for fiscal financing to the statutory limit of 5 percent of the previous year’s revenues by pursuing fiscal consolidation, better budgetary planning, and resorting to supplementary budgets in case of financing shortfalls.”
Furthermore, the statement called for the amendment of the CBN Act to remove the intervention function of the apex bank and allow it to focus on price stability.
“The mission also reiterated its previous recommendations to modernize the 2007 CBN ACT to establish price stability as its primary objective.”
Nigeria’s central bank has over the last five years intervened in the economy via specially designated loans to key sectors of the economy.
Data from the apex bank reveals the central bank has intervened with about N11 trillion designated under “claims on other sectors” and another N27 trillion to the central government (inclusive of the N22 trillion in ways and means).
The central bank is intervening in the agriculture sector, SMEs, power sector, aviation, manufacturing, etc.
These recommendations by the IMF imply that the CBN should stop funding key sectors of the economy which may trigger sectors massive liquidity crises for most companies.
Several central bank partly-funded projects may suffer major setbacks if the borrowers are not able to seek alternative funding.
It also means the central bank might be forced to wind down its lending to the federal government which has risen to unprecedented levels in recent months.