Stop waivers for banks, IMF tells CBN

The International Monetary Fund (IMF) has urged the Central Bank of Nigeria (CBN) to phase out the regulatory relaxations granted to commercial banks during the COVID-19 pandemic.

Additionally, the IMF cautioned the Federal Government against amending the CBN’s establishing Act, emphasizing the importance of preserving the central bank’s autonomy.

In its Article IV Staff Consultation Report released on Thursday in Washington DC, the IMF stressed the need to strengthen Nigeria’s monetary policy framework.

The report highlighted the absence of a clear hierarchy among the CBN’s objectives and the inclusion of government representatives on its Board of Directors and Monetary Policy Committee, which hinders effective monetary policy operations and creates accountability ambiguity.

The IMF recommended modernizing the 2007 CBN Act to prioritize price stability, enhance central bank autonomy, and improve governance arrangements, as suggested by the 2021 Safeguards Assessment. Furthermore, the IMF expressed concern over the heavy reliance on monetary financing of the fiscal deficit.

The report read, “Directors emphasised the importance of close monitoring of financial sector risks. They supported the increase in the minimum capital for banks and urged the CBN to unwind the regulatory forbearance introduced during the pandemic. Directors acknowledged the recent improvements in the AML/CFT framework and called for sustained action to exit the FATF grey list. They supported the authorities’ efforts to foster financial inclusion and deepen the capital market.

“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 Act that might weaken the central bank’s autonomy. They encouraged further progress in implementing the outstanding recommendations from the 2021 safeguards assessment.

“Directors commended the authorities for restarting the cash transfer programme and emphasised 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 market distortions and encouraged the authorities to continue improving the functioning of the FX market, including by adopting a well-designed FX intervention framework.”