IMF tells CBN to end intervention funds to the private sector

The International Monetary Fund “IMF” has recommended that the central bank of Nigeria stop its intervention policies in the economy amidst the rising inflation rate.

The IMF made these recommendations in its concluding Statement of the 2022 Article IV Mission published on November 18, 2022.

Nigeria’s central bank has over the last five years intervened in the economy via specially designated loans to key sectors of the economy. Data from the apex bank reveals the central bank has intervened with about N11 trillion designated under “claims on other sectors” and another N27 trillion to the central government (inclusive of the N22 trillion in ways and means).

What IMF is saying: The International Monetary Fund wants the central bank to stop giving out new intervention funds and admonished the apex bank on its continuous funding of government deficits.

The IMF listed three key recommendations which it claims are measures that will effectively tighten the monetary policy stance: They are

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

What this means: The IMF is essentially telling the central bank to end its two-year-long policy of pumping trillions of naira into the economy via intervention funds.

• The central bank is intervening in the agriculture sector, SMEs, power sector, aviation, manufacturing, etc.
• If it heeds the advice of the IMF then it could stop funding these sectors triggering a massive liquidity crisis for most companies.
• For example, existing central bank-funded projects that have been partly funded may encounter major setbacks if the borrowers are not able to seek alternative funding.
• This could mean thousands of contractors and service providers who rely on CBN funds may face challenges getting their balances.
• It also means the central bank might be forced to wind down its lending to the federal government which has risen to unprecedented levels in recent months.

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

• “The mission welcomed progress in the securitization of the CBN’s existing stock of overdrafts and recommended speedy finalization.”
• “Going forward, it would be important to limit reliance on CBN overdrafts for fiscal financing to the statutory limit of 5 percent of previous year’s revenues by pursuing fiscal consolidation, better budgetary planning, and resorting to supplementary budgets in case of financing shortfalls.”
• They also called for the amendment of the CBN Act to remove the intervention function of the apex bank and allow it to focus on price stability.
• “The mission also reiterated its previous recommendations to modernize the 2007 CBN ACT to establish price stability as its primary objective.”