IMF Urges Nigeria to Roll Back Pandemic-Era Banking Forbearance

In a recent Article IV Staff Consultation Report, the International Monetary Fund (IMF) strongly advised the Central Bank of Nigeria (CBN) to reverse the regulatory forbearance granted to Deposit Money Banks during the COVID-19 pandemic. 

The IMF also cautioned against proposed amendments to the Act establishing the apex bank, emphasizing the need to safeguard the central bank’s autonomy.

Released on Thursday in Washington DC, the report underscored the importance of closely monitoring financial sector risks and urged the CBN to increase the minimum capital for banks. While acknowledging recent improvements in Nigeria’s Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) framework, the IMF called for sustained efforts to exit the Financial Action Task Force (FATF) grey list and promote financial inclusion and market depth.

Expressing concerns about the legal and operational framework surrounding monetary policy in Nigeria, the IMF highlighted the lack of clear hierarchy among the CBN’s objectives. It criticized the inclusion of government representatives on the Board of Directors and the Monetary Policy Committee, citing potential hindrances to monetary policy effectiveness and accountability.

The IMF recommended modernizing the 2007 CBN Act to prioritize price stability, enhance central bank autonomy, and strengthen governance arrangements. It cautioned against heavy reliance on monetary financing of the fiscal deficit and advised caution regarding amendments that could weaken the central bank’s autonomy.

Furthermore, the IMF applauded Nigeria’s efforts to restart the cash transfer program to mitigate food insecurity, urging its expansion. It also welcomed initiatives to boost revenue mobilization through tax enforcement and base broadening. Emphasizing the importance of tight monetary policy, exchange rate flexibility, and reserve building, the IMF encouraged the removal of foreign exchange market distortions and improvements in FX market functioning.

The IMF’s recommendations reflect a broader call for policy reforms to ensure macroeconomic stability, financial sector resilience, and inclusive growth in Nigeria. As the country navigates economic challenges exacerbated by the pandemic, constructive engagement with international partners such as the IMF is vital to address structural weaknesses and promote sustainable development.