Removing CBN’s autonomy ‘ll hurt the economy – IMF

By Emma Ujah, Abuja Bureau Chief
ABUJA — As the debate over Central Bank of Nigeria’s (CBN) autonomy continues to rage, the International Monetary Fund, IMF, has warned that removing the autonomy of the CBN would only hurt the nation’s economy and that those behind the move should let the autonomy be.

According to it, removing the CBN autonomy would not only weaken the apex bank’s regulatory roles but also make it ineffective as those in the helm of its affairs would place political and other considerations above policy decisions necessary to ensure an effective payment system and a generally stable banking sector.

Briefing journalists on the Fund’s recently published Sub-Saharan Africa Regional Outlook, in Abuja, yesterday, the IMF Country Chief and Senior Resident Representative, Mr. W. Scott Rogers, said if the autonomy was removed, CBN officials would be afraid to take policy decisions that might be unpleasant to certain interests that wield political powers.

His words: “The IMF has always argued for strong independence of the Central Bank. It provides them with the autonomy to depoliticize monetary policy actions.  Without a strong Central Bank you will not have an independent monetary policy.  Everything then depends upon the budget alone and as you can see now, without the Central Bank’s ability to do what it is doing, the results you are seeing won’t be there.

“It is primarily because of the Central Bank’s ability to tighten monetary policy which is the right thing to do.

“It is important for the Central Bank to have the autonomy to hire the people they need and to undertake modernisation that they need to manage payment system effectively. They should be able to do that without the fear of being penalised. Because they took an unpleasant decision on interest rate policy or because they decided they needed to close a bank. Those are decisions they need to take constantly.”

Time to build buffer

According to Rogers, the economic outlook of the region looks good with some of the countries in Africa, including Nigeria, having the fastest growing rates, globally, but that this is the time for Nigeria to undertake fiscal consolidation measures to strengthen the economy’s resilience “because we don’t know what will happen next.”

According to him, Nigeria must “prepare for future adverse shifts in global economy” by building safety buffers by maintaining fiscal surplus while oil prices are high.

According to the IMF chief, the country should prepare for slow-down growth in the near future as a result of the global economic crisis, especially in some countries in the Eurozone which will ultimately affect crude oil demand.

Need for financial discipline at the two lower tiers of  govt

Rogers observed that the Federal Government c ould not alone create the necessary fiscal surplus since it spends only about half of the federation revenue and that there was need for the states and local governments to do same.

“The Federal Government spends about half of the federation’s money.  The other half is spent by the states and the local government. So if the Federal Government is saving but the others are not it will affect the overall performance of the economy,” he said.

Structural reforms for the needed growth

The IMF Country Rep noted that for the nation to achieve the expected accelerate growth rate, the government must undertake structural reforms in key sectors of the economy, especially power, transportation, the gas sub-sector of the oil petroleum industry, water, education an security.

According to him, the government should move from direct ownership and operation of power to regulation and oversight functions, while in the gas sector, he advocated a reform that would make cost recovery possible with a view to making it attractive to foreign investors.

His words: “Long term growth in any economy is a function of the accumulation of machines, equipment and technology, education of your workforce.  This is where your long-term growth comes from.

“Reforming the power sector, reforming the gas sub-sector— moving from government direct ownership and operations to regulations and oversight functions. Targeting government spending at people who are adversely affected by such reforms.”