The International Monetary Fund has requested that the Central Bank of Nigeria Act 2007 be reviewed in order to increase the bank’s autonomy and governance.
IMF made the demand in the latest report titled ‘Nigeria: 2022 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Nigeria’.
The need for a current review of the CBN Act 2007 comes at a time when the bank’s independence is being questioned over its naira redesign strategy.
With the Supreme Court’s recent order to postpone the ban on the old N1000, N500, and N200 notes, many have questioned the court’s authority and the CBN’s independence.
The Speaker of the House of Representatives, Femi Gbajabiamila, recently stated that regardless of the CBN’s ostensible independence, the apex bank was nonetheless constrained by law.
He said, “Many have argued on the independence of CBN – the autonomy of CBN. That does not make CBN above the law. The constitution gives the House the power to issue an arrest warrant against anyone; we can summon anybody and that was exactly what the House was going to do until the CBN governor came. So, we are watching, and we are monitoring very closely.”
Despite this, the IMF emphasized how important it was to preserve the central bank’s independence so that it could prioritize maintaining price stability as its primary mission.
Also, it encouraged the Central Bank of Nigeria to resume publishing its yearly financial statements and to conform its operations to international norms.
The report read partly, “To strengthen the central bank’s autonomy and governance and to establish price stability as its primary objective, the 2007 CBN Act needs to be modernised.
“The CBN’s financial reporting practices should be bolstered through full adoption of International Financial Reporting Standards and resumption of publication of annual financial statements. More broadly, the CBN should take steps to implement the recommendations from the assessment (the 2021 Safeguards assessment) as progress has been limited thus far.”
The IMF also emphasized the need to protect the independence and tenure of central bank staff while enhancing the autonomy of the central bank by lowering the number of government representatives on the top board and committees.
“A safeguards assessment of the CBN was completed in April 2021 but progress on implementation of recommendations has been limited. The CBN’s internal and external audit mechanisms broadly adhere to international standards.
“However, the CBN Act needs to be modernised to enshrine price stability as the primary objective, strengthen the central bank’s autonomy including by reducing the presence of government officials at the board and the CBN’s committees, and by safeguarding the independence and tenure of central bank officials. Legal amendments should also provide for independent oversight over the CBN, including establishing a majority non-executive board and an audit committee that is independent of executive management.
“Financial autonomy should be safeguarded through clear statutory limits on credit to government and prohibition of quasi-fiscal operations and developmental lending activities, which need to be phased out. Financial reporting practices need to be bolstered through the full adoption of International Financial Reporting Standards and resumed publication of annual financial statements. Thus far, limited traction has been seen on implementation of the recommendation and staff continues to engage with the authorities on these issues,” the report noted.
Also, the IMF encouraged the CBN to curtail several quasi-fiscal operations that have grown significantly since the outbreak.
While some of these initiatives, like the Anchor Borrowers’ Programme, which provides finance to farmers, fill a gap in the market, it was noticed that there were efficiency issues.
Additionally, it cautioned that an excessive increase in quasi-fiscal operations would exacerbate financial repression, undermine the credibility of the CBN’s mission on price stability, and exacerbate the propensity for monetizing fiscal deficits.