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IMF Urges CBN to Rescind Pandemic-Era Regulatory Relief for Banks

The International Monetary Fund (IMF) has strongly advised the Central Bank of Nigeria (CBN) to unwind the regulatory forbearance measures granted to deposit money banks during the COVID-19 pandemic.

In its Article IV Staff Consultation Report released on Thursday, the IMF also cautioned against the proposed amendments to the Act establishing the CBN, emphasising the need to preserve the autonomy of the central bank.

While the report did not provide specifics on the waivers extended to banks, it underscored the importance of close monitoring of financial institutions for potential risks in the sector.

The IMF report stated, “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.”

Furthermore, the report highlighted the need to fortify the legal and operational framework surrounding monetary policy in Nigeria. The IMF expressed concerns over the absence of a clear hierarchy among the CBN’s objectives, as well as the inclusion of government representatives on the Board of Directors and potentially the Monetary Policy Committee, as outlined in the 2007 CBN Act. This situation, according to the IMF, hinders the effectiveness of monetary policy operations and creates ambiguity in terms of accountability to the public.

The report recommended modernising the 2007 CBN Act, as advised by the 2021 Safeguards Assessment, to enshrine price stability as the primary objective and strengthen central bank autonomy and governance arrangements. Additionally, the IMF noted a heavy reliance on monetary financing of the fiscal deficit.

The IMF report also commended the authorities for restarting the cash transfer programme and emphasised the urgency of scaling it up to mitigate acute food insecurity. It welcomed the authorities’ work on a comprehensive revenue mobilisation strategy, including boosting tax enforcement and broadening the tax base.

Moreover, the report stressed the importance of maintaining a tight monetary policy stance to put inflation on a downward path, preserving exchange rate flexibility, and building reserves. The IMF 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.

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