The International Monetary Fund (IMF) on Thursday threw its weight behind the Central Bank of Nigeria (CBN) plan to raise the capital base of commercial banks in the country.
In a statement issued from its headquarters in Washington, the Executive Board of the Fund at the end of its 2024 Article IV Consultation with Nigeria, urged the apex bank to unwind the regulatory forbearance introduced during the COVID-19 pandemic.
The Directors of the Fund, however, called for caution regarding plans by the National Assembly to amend the provisions of the CBN Act to avoid weakening the central bank’s autonomy.
The Executive Board of the Fund, which rounded off its consultation with Nigeria on April 29, 2024, acknowledged the ambitious reforms embarked upon by the Bola Tinubu administration to restore macroeconomic stability and support inclusive growth in the economy.
Apart from the removal of subsidies on petroleum products prices, unification of the official and parallel foreign exchange markets, the IMF said the administration focused on revenue mobilization, governance, and enhancing of the monetary and exchange rate policy frameworks, as well as strengthening of social safety nets to cushion the impact of the various economic policies on the people.
Real GDP growth in the economy slowing to 2.9 percent in 2023, with weak agriculture and trade, and despite the improvement in oil production and financial services, the IMF said fresh growth projections show the economy would grow at 3.3 percent for 2024, as both oil and agriculture outputs are expected to improve with better security.
Inflation reached 32 percent year-on-year in February 2024, driven mainly by food price inflation (38 percent) and loose financial conditions.
With CBN’s continued stance on monetary policy tightening, the Fund said inflation, which rose to about 33.20 percent in March, is projected to gradually decline to 24 percent year-on-year at end-2024.
Following CBN’s sustained monetary policy tightening in February and March 2024 and a resumption of FX interventions, the Naira began to strengthen and stabilize, although food insecurity worsened with further adverse shocks to agriculture or global food prices.
The Board welcomed the reforms implemented by the present administration and commended the focus on revenue mobilization, governance, social safety nets, and upgrading policy frameworks amid Nigeria’s significant economic and social challenges.
As a result of the downside risks, the Directors stressed the need for the government to remain steadfast and effectively communicate the reforms to restore macroeconomic stability, reduce poverty, support social cohesion, and pave the way for faster, inclusive, and resilient growth.
While commending the government’s actions to rein in inflation and restore market confidence, 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.
Besides, they 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.
The Directors supported the CBN’s proposal to shift to an inflation targeting regime and recommended strengthening apex bank’s independence and communication to ensure a successful transition.
Noting the plan by the government to restart the cash transfer programme to help the vulnerable population, the Directors emphasized the urgency of scaling it up to mitigate acute food insecurity.
Also, they welcomed government’s work on a comprehensive revenue mobilization strategy, including boosting tax enforcement and broadening the tax base by the Federal Inland Revenue Service (FIRS).
They underscored the need for mobilizing revenue and reprioritizing expenditure, including phasing out costly and regressive energy subsidies, to create fiscal buffers for development spending and strengthening social protection, while maintaining debt sustainability.
Directors acknowledged the recent improvements in the Anti-Money Laundering and Combating Financing of Terrorism (AML/CFT) Policy framework and called for sustained action to exit the Financial Action Task Force (FATF) grey list.
Other aspects of the government policies that the IMF supported were efforts to foster financial inclusion and deepen the capital market, while highlighting the importance of reforms to enhance the business environment, improve security, implement key governance measures, develop human capital, boost agricultural productivity, and build climate resilience.
“These reforms are crucial to boost investor confidence, unlock Nigeria’s growth potential and diversify the economy, address food insecurity, and underpin sustainable job creation,” the IMF said.
