The IMF tells CBN to end intervention funds to the private sector

The International Monetary Fund “IMF” has recommended that the Nigerian central bank halt its intervention policies in the economy amid the rising inflation rate.

The IMF made these recommendations in its final 2022 Article IV Mission Statement released on November 18, 2022.

Nigeria’s central bank has intervened in the economy for the past five years through specially designated loans for key sectors of the economy. Data from the main bank reveals that the central bank has stepped in with around 11 trillion naira designated in “claims on other sectors” and another 27 trillion naira to the central government (including the 22 trillion naira in ways and means).

What the IMF says: The International Monetary Fund wants the central bank to stop providing new intervention funds and has reprimanded the main bank for its continued financing of government deficits.

The IMF listed three key recommendations that it says are steps that will effectively tighten the monetary policy stance: They are

The news continues after this announcement.

  • “fully sterilize the impact of CBN fiscal deficit financing on the money supply” basically telling the central bank to clean up the financing of government deficits through ways and means.
  • “continue to phase out CBN’s credit intervention programs, which expanded rapidly during the pandemic to support the economy.” Thus telling the central bank to end its financing of the private sector through intervention funds. Intervention policy in the private sector increased after the Covid-19 lockdowns.

What does this mean: Basically, the IMF is telling the central bank to end its two-year policy of pumping trillions of naira into the economy through intervention funds.

  • The central bank is intervening in the agricultural sector, SMEs, the electricity sector, aviation, manufacturing, etc.
  • If you follow the advice of the IMF, you could stop funding these sectors and trigger a massive liquidity crunch for most companies.
  • For example, existing central bank-financed projects that have been partially financed may face major setbacks if borrowers are unable to seek alternative financing.
  • This could mean that thousands of contractors and service providers who rely on CBN funds may face challenges getting their balances.
  • It also means the central bank could be forced to reduce its lending to the federal government, which has risen to record levels in recent months.

More IMF: The IMF concluded by recommending that the CBN not only reduce lending to the federal government, but support packaging the loans as bonds which the debt management office says is in the offing.

The news continues after this announcement.

  • “The mission welcomed the progress in securitizing the existing stock of CBN overdrafts and recommended expeditious completion.”
  • “In the future, it would be important to limit the reliance on CBN overdrafts for fiscal financing to the legal limit of 5 percent of the previous year’s revenue through fiscal consolidation, better budget planning, and the use of supplementary budgets in case of financing gap”.
  • They also called for the CBN Law to be amended to remove the intervention role of the lead bank and allow it to focus on price stability.
  • “The mission also reiterated its previous recommendations to modernize the CBN ACT of 2007 to establish price stability as its primary objective.”