The International Monetary Fund (IMF) has asked Nigeria’s Central Bank to “scale back” its credit intervention programmes because, according to it, they are likely to cause market distortions in the long run. It recognizes that the interventions were a response to the disruptions caused by the COVID-19 pandemic. “However, they cannot be expanded indefinitely given likely efficiency costs and market distortions and its thorough review will be warranted,” the bank said. It stated that while CBN’s internal and external audit mechanisms “generally adhere to international standards,” the CBN Act “needs to be modernised to strengthen its autonomy, governance, and to establish price stability as its primary objective.” According to it, “The CBN’s involvement in quasi-fiscal operations and developmental lending activities should be phased out, and financial reporting practices bolstered through full adoption of International Financial Reporting Standards and resumed publication of annual financial statements.”
In its ‘Nigeria Staff Report for the 2021 Article IV Consultation,’ the IMF said “The CBN’s credit injection to the private sector, both direct lending and on-lending through banks, accounts for about 45 percent of credit growth since 2020—significantly above the average of 12 percent in pre-Pandemic years. As banks exercised restraints in lending, the CBN interventions have provided financing to the underserved markets (e.g., agriculture) and mitigated the impact of the Pandemic.”
However, this push for de-escalation does not sit well with Nigerian authorities who believe the CBN’s multi-faceted role is justified since “it is shepherding a frail recovery.” They are convinced that the intervention programmes are targeted at sectors capable of helping job creation. According to them, “it is impossible for the CBN to phase out these programmes before the COVID-19 Pandemic is over.” Simple logic.
According to top government sources, “the authorities believe that the need for shepherding a frail recovery amidst very limited fiscal space justifies the CBN’s multi-faceted role. Unconventional policy instruments, notably the CRR, have been vital in controlling excess liquidity, while selectively allowing its use for providing credit to priority sectors. The intervention programmes have been targeted at sectors with a large empirical elasticity vis-à-vis job creation.” The authorities also do not view Nigeria’s inflation as a monetary phenomenon, particularly in the short run, stressing the importance of structural factors including credit gaps as a critical driver of supply-side inflation.
The government agrees with the need to shift away from intrusive measures such as discretionary Cash Reserve Ratio in the medium term. But it believes that “the uncertain Pandemic outlook and frictions around monetary transmission mechanism do not warrant an immediate abandoning of this tool which has proved to be quite potent.” It is also persuaded that the envisaged phasing out of quasi-fiscal activities can only be resumed once the crisis is over.”
We do not have a problem with the IMF’s so called advice to the CBN but with the manner in which the ‘advice’ is given. We know its stated objective to be “working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth and reduce poverty around the world.”
However, this fostering of global monetary cooperation is being hindered by the IMF’s selective treatment of developed economies and the so called Third World nations. Its approach to the former is cooperative but to the latter the IMF gives orders and its attitude is paternalistic, as of a parent to a child.
On this matter, what stopped the IMF from seeking an audience with the Nigerian government to offer its advice? Why go public first? It is disrespectful. It cannot, will not do to the US Treasury Department or the UK Exchequer what it did to Nigeria’s Central Bank. It is blatant imperiousness which we must condemn. The IMF must change gears if it truly seeks to “foster global monetary cooperation”.
