Refocusing CBN To Play Limited Advisory Roles

Recently, the Governor of the Central Bank of Nigeria (CBN), Mr. Olayemi Cardoso, hinted of his plans to refocus the apex bank from direct development finance interventions into more limited advisory roles that support economic growth.
Cardoso said, much has been made of past CBN forays into development financing, such that the lines between monetary policy and fiscal intervention have blurred.
“in refocusing the CBN to its core mandate, there is a need to pull the CBN back from direct development finance interventions into more limited advisory roles that support economic growth”, he noted.
CBN’s intervention in development financing is not new as it dates back to the 1920s.
CBN said, its involvement in development financing was driven by the need to address market failures resulting from the apathy of banks to lend to critical sectors/segments of the economy due to perceived risks.
Through its interventions, it said, it has “improved access to affordable and long-term finance to the real sector, de-risked these priority sectors by incentivising banks and other financial institutions to lend, and stimulated investments in the productive base of the economy”.
It said, “the interventions are targeted at priority sectors of the economy that have the potential to transform the productive base of the economy to facilitate growth, stimulate sustainable jobs, expand the non-oil export basket to enhance the foreign exchange earning capability of the economy and facilitate financial inclusion.
“The emphasis of these interventions is to stimulate the flow of affordable credit to targeted priority sectors with high growth impact and employment elastic potential, such as agriculture, manufacturing, energy/infrastructure, healthcare, MSMEs, and exports.
“The CBN’s development finance intervention programmes and schemes have been designed and implemented in collaboration with key stakeholders such as Financial Institutions (FI), Development Finance Institutions (DFIs), Ministries, Departments and Agencies (MDAs) of Government and the Organized Private Sector (OPS)”, it said.
Frankly Speaking, the Emefiele-led CBN adopted direct development finance interventions to effectively manage the Economic Downturns occasioned by the global financial crisis and COVID-19 pandemic.
Delivering a paper at the 40th Anniversary/Convocation lecture of Ekiti State University, Ado-Ekiti with the topic, ‘The Role of Central Banks in Managing Economic Downturns’, Emefiele who was represented by the then CBN’s Deputy Governor in charge of Corporate Services, Mr. Edward Adamu said, the intervention of the CBN in the real economy was to facilitate the development of financial markets through the creation of easy access to credit for investment and production.
He said, due to the limited fiscal space as a result of the significant drop in government revenue, the CBN had to intervene with development finance tools and some monetary policy innovations to aid recovery without jeopardising price stability.
He argued that the central banks in both advanced and emerging markets embraced quantitative easing in order to support their economies toward recovering from the global financial crisis of 2008/2009 and the associated economic downturn triggered by the COVID-19 pandemic.
He noted that the present administration has granted over N3 trillion in intervention funds, which has helped generate employment and improve productivity.
He said, “The intervention of central banks in development financing is not new as it dates back to the 1920s.
“Many central banks in advanced, emerging, and developing economies during the recent COVID-19 pandemic supported their fiscal authorities. The aim is to aid the recovery of their economies following the significant decline in global growth occasioned by the pandemic.
“These central banks, particularly in developing countries, intervene in the real economy to enhance the transmission mechanism of monetary policy actions as well as facilitate the development of financial markets through the creation of easy access to credit for investment and production.
“It is thus undeniable that development finance interventions are frequently an integral part of the recovery strategy in most countries,’’ Emefiele said.
Some of the benefits of the CBN interventions include Improved liquidity, Stability in the economy, Mitigation of stress in currency and bond markets, Provision of credit, and Developmental role.
However, Cardoso recently announced that the time was ripe for CBN to play more limited advisory roles that support economic growth.
According to him, these advisory roles could include, for instance: “Acting as a catalyst in the propagation of specialised institutions and financial products that support emerging sectors of the economy.
“Facilitate new regulatory frameworks to unlock dormant capital in land and property holdings.
“Accelerate access to consumer credit and expand financial inclusion to the masses.
“De-risking instrumentation to increase private sector investment in housing, textiles and clothing, food supply chain, healthcare, and educational supplies. These verticals have huge demand patterns, with the potential for high local inputs and value retention, and can be the basis for rapid industrialisation.
“Exercise CBN’s convening power to bring key multilateral and international stakeholder participation in government and private sector initiatives’.
The CBN Governor listed some of the challenges facing the apex bank to include:
failure in corporate governance in CBN, Diminished institutional autonomy, Need to refocus CBN back to core functions, Unorthodox use of Ways and Means spending, Backlog of FX demand, Inflation and price stability, Access to FX market and FX price discovery, and Current Financial System Stability.
Cardoso emphasised that CBN does not have a magic wand that could be waved at the current economic challenges, adding that the problems facing the bank are large and complex.
However, he said, “with focused leadership and sustained reforms, it is expected that over time, the country will see gains open economic spaces, attract new investments, create employment, and give our hardworking and talented compatriots opportunity for a more prosperous future”.
On how a refocused CBN could support economic growth, Cardoso said, size matters.
He said, the economic policy proposals of the Administration identify a set of fiscal reforms and growth targets that would achieve $1.0 TN GDP within eight years.
He said, “in reviewing selected BRICS and MINT countries, with large populations and similar developmental characteristics as Nigeria, it is interesting to identify macro-economic indices that point to Nigeria’s economic trajectory, given the faithful implementation of the proposed economic reforms.
“In economies bigger than $1.0TN, these indicators include moderate inflation, sizable foreign reserves, and the capacity to quickly rebound from a cyclical economic downturn”, he said.