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CBN mulls $1.0trn GDP growth, to drop development financing for price, economic stability

Dr. Olayemi Michael Cardoso, Governor of CBN Photo Collage: Policy and Legal Advocacy Centre

*Dr. Olayemi Michael Cardoso, Governor of CBN, in a recent working document, highlights the banking regulator is set to refocus to its core mandate, shelve direct development finance interventions to support price stability, ensure soundness of the banking system to attain $1.0 trillion GDP growth in the next eight years

Gbenga Kayode | ConsumerConnect

The Central Bank of Nigeria (CBN) has unveiled its plan to align with the current far-reaching reforms to restore consumer confidence in the country’s banking sector regulator.

Dr. Olayemi Michael Cardoso, Governor of CBN, in recent document from the Bank stated that the regulator would no longer be directly involved in development finance interventions in the Nigerian economy.

Cardoso, in the paper, indicated the “preliminary assessment of the challenges facing the CBN.”

According to him, “much has been made of past CBN forays into development financing, such that the lines between monetary policy and fiscal intervention have blurred.

“In refocusing the CBN to its core mandate, there is a need to pull the CBN back from direct development finance interventions into more limited advisory roles that support economic growth.”

ConsumerConnect also learnt that hitherto, the CBN “has been involved in providing funding for various developmental projects.

“This has led to a blurred line between the CBN’s role in monetary policy and its intervention in fiscal matters.”

The quoted CBN source noted “however, there is a growing recognition of the need to refocus the CBN to its core mandate and limit its involvement in direct development finance interventions.”

In order to achieve this refocus, it is said that “one approach is to transition the CBN from directly providing financing for development projects to a more limited advisory role.

“Instead of directly funding projects, the CBN can provide guidance and expertise to help facilitate economic growth.”

The source further noted: “This advisory role can include providing recommendations on policy measures, regulations, and strategies that support economic development.

“By limiting its direct intervention in development financing, the CBN can avoid potential conflicts between its role in monetary policy and its involvement in fiscal matters.”

The top official, who is privy to Dr. Cardoso’s agenda was quoted to have said: “This separation will allow the CBN to focus on its primary mandate of maintaining price stability, promoting financial stability, and ensuring the soundness of the banking system.

“Shifting towards an advisory role allows the CBN to leverage its expertise and provide valuable insights to policy-makers and other stakeholders.

“The CBN can use its knowledge of the financial sector and its understanding of the broader economy to support decision-making processes that lead to sustainable economic growth,” noted the official.

Highlights of Bank’s advisory roles in Nigerian economy

Cardoso, in his assessment document  highlighted the advisory roles the CBN could play in the country’s economy.

These include the CBN acting as a catalyst in the propagation of specialised institutions and financial products that support emerging sectors of the economy; facilitating new regulatory frameworks to unlock dormant capital in land and property holdings; accelerating access to consumer credit and expanding financial inclusion to the masses.

According to the Governor of CBN, other advisory roles the Bankers’ Bank would play include de-risking instrumentation to increase private sector investment in housing, textiles and clothing, food supply chain, healthcare, and educational supplies.

He also stated: “These verticals have huge demand patterns, with the potential for high local inputs and value retention, and can be the basis for rapid industrialisation.”

He further disclosed the CBN would exercise “convening power to bring key multilateral and international stakeholder participation in government and private sector initiatives.”

Challenges confronting the banking sector regulator

In actualising his vision for the CBN, Cardoso however, identified some of the current challenges confronting the Bank.

“In assessing challenges currently facing the Central Bank of Nigeria, preliminary questions are being raised on addressing these challenges,” stated he.

The CBN Governor identified failure in corporate governance in CBN: How will issues of governance be addressed?

Diminished institutional autonomy

How can public and financial systems’ stakeholder confidence be restored in the autonomy and integrity of CBN?

Need to refocus CBN back to core functions

What needs to be in place to revert to evidence-based monetary policies? Discontinuation of unorthodox monetary policies and Foreign Currency management?

Cardoso as well touched on addressing the Foreign Exchange (Forex) crisis rocking the Nigerian economy over time.

He noted the backlog of FX demand and asked “how much of the backlog is real versus speculative/ hoarding? Are there creative financing options for clearing the short to medium-term backlog?”

Lack of clarity in fiscal and monetary relationships – where are the delineations, and what should be the limits in CBN’s fiscal side interventions?

Inflation and price stability

What are the causes, and what is CBN’s proposed response to address inflation and price stability issues?

Access to FX market and FX price discovery

What mechanisms exist to address FX rate unification under a willing buyer and willing seller arrangement? What should be the role of the Central Bank in the FX market? Is there a need for interest rate realignment to money supply, inflation, and market realities?

Current Financial System Stability: What is the current state of the financial system?

Are CBN surveillance frameworks being updated proactively to track the expanding use of electronic payment systems by FinTech and Telcos?

In putting these questions in perspective while providing answers, The Nation report also noted the source said, “one of the main challenges Cardoso will face is the need to refocus the CBN back to its core functions.

“Over the years, the CBN has been involved in a wide range of activities beyond its primary mandate, such as developmental projects and implementing unorthodox monetary policies.

“The discontinuation of unorthodox monetary policies. In recent years, the CBN has resorted to unconventional measures to manage the economy, such as direct intervention in sectors like agriculture and manufacturing.”

The official stated: “While these policies may have had short-term benefits, they can also create distortions and undermine the effectiveness of monetary policy in the long run.

“Therefore, there is a need to gradually phase out such unorthodox measures and transition to more conventional and evidence-based policies.”

The source further explained: “Foreign currency management is also a challenge for the CBN. Nigeria has experienced foreign exchange scarcity, and the CBN has had to intervene in the Forex market to stabilise the currency.

“However, this has resulted in multiple exchange rates and limited access to foreign exchange for businesses and individuals.

“To address this challenge, the CBN needs to adopt a more transparent and market-driven approach to foreign currency management.”

According to the official, “this could involve liberalising the Forex market, reducing restrictions, and allowing market forces to determine exchange rates.

“Overall, addressing these challenges requires a shift towards evidence-based policymaking, discontinuation of unorthodox measures, and implementing a more transparent and market-driven approach to foreign currency management.

“These changes would help restore confidence in the CBN’s operations and strengthen its ability to effectively fulfill its core functions.

Refocusing CBN to support record $1.0 trillion GDP growth in 8 years

In the document, Dr. Cardoso equally figured out how a refocused CBN could support economic growth in the West African country.

“The economic policy proposals of the Administration (President Bola Ahmed Tinubu’s) identify a set of fiscal reforms and growth targets that will achieve $1.0 trillion GDP within eight years.

“In reviewing selected BRICS and MINT countries, with large populations and similar developmental characteristics as Nigeria, it is interesting to identify macro-economic indices that point to Nigeria’s economic trajectory, given the faithful implementation of the proposed economic reforms.”

He as well noted: “In economies bigger than $1.0 trillion these indicators include moderate inflation, sizable foreign reserves, and the capacity to quickly rebound from a cyclical economic downturn.”

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