The International Monetary Fund (IMF) has urged the Central Bank of Nigeria (CBN) to go beyond recent increases in the policy rate to implement additional actions, including fully sterilising the apex bank’s financing of fiscal deficits under its Ways and Means window as well as phasing out other credit intervention programmes.
The multilateral lender also called on the Nigerian authorities to expedite action in finalising the moves to securitise the N22.7 trillion overdrafts extended by the CBN to the federal government to finance annual fiscal deficits.
In a statement issued after its Executive Board concluded its 2022 Article IV Consultation with Nigeria, the IMF observed recent increases in the policy rate, but encouraged the CBN to stand ready to further increase the policy rate if needed, and to implement additional actions, including fully sterilising central bank financing of fiscal deficits and phasing out credit intervention programmes.
The IMF stated: “Strengthening the CBN’s independence and establishing price stability as its primary objective is critical. Directors also urged the authorities to finalise securitisation of the CBN’s existing stock of overdrafts and emphasised that the CBN’s budget financing should strictly adhere to the statutory limits.”
According to the IMF, Nigeria’s economy has recouped the output losses sustained during the COVID-19 pandemic supported by favorable oil prices and buoyant consumption activities.
But it stated that despite rising oil prices, the general government fiscal deficit was estimated to have widened further in 2022, mainly due to high fuel subsidy costs, adding that while the current account was estimated to have improved in 2022, foreign currency reserves declined amidst capital outflow pressures.
The global lender observed that notwithstanding the authorities’ success in containing and managing the COVID-19 infections, socio-economic conditions remain difficult.
“Directors urged decisive and effective monetary policy tightening to avoid a de-anchoring of inflation expectations. Noting recent increases in the policy rate, they encouraged the Central Bank of Nigeria (CBN) to stand ready to further increase the policy rate if needed and to implement additional actions, including fully sterilising central bank financing of fiscal deficits and phasing out credit intervention programs,” the statement added.