MF Warns FG Against Diluting CBN’s Autonomy

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…says Nigeria‘ll raise VAT in 2025

…seeks licensing of global crypto platform

The International Monetary Fund (IMF) has cautioned the Federal Government that certain sections in the draft Bill on amendments of the Central Bank of Nigeria (CBN) Act, currently being considered by the National Assembly, could weaken the apex bank’s governance and autonomy, if signed into law.

The Fund stated this in the staff report on the conclusion of its 2024 Article IV Consultation with Nigeria, released on Thursday.

As the IMF put it, “there is a risk that ongoing work by members of the legislature to amend the CBN Act could weaken the central bank’s governance and autonomy.

“Several elements in the current draft Bill as disclosed in the public domain would, if enacted, significantly weaken the institutional framework and its independence, e.g., the envisaged ‘Coordinating Committee for Monetary and Fiscal Policies’ chaired by the Minister of Finance could undermine the autonomy of the CBN and its Monetary Policy Committee, which is separately chaired by the Governor of the CBN.”

According to the Bretton Woods institution, for Nigeria’s planned shift to an inflation targeting regime to be successful, the country needs to strengthen central bank independence and communication.

New Telegraph reports that the bill to amend the CBN Act 2007, which passed second reading at the Senate in February, was sponsored by 41 members of the Committee on Banking, Insurance and other Financial Institutions.

Although the IMF noted that measures introduced by the President Bola Tinubu administration, which came into office on May 29 last year, such as the reform of fuel price subsidies, unification of the official forex exchange windows and increased focus on revenue mobilisation, will lead to Nigeria recording growth of 3.3 per cent this year compared to 2.9 per cent in 2023, it recommended that determined and well-sequenced implementation of the FG’s policy intentions would pave the way for faster, more inclusive and resilient growth.

For instance, on the country’s measures to increase revenue generation, the IMF said: “The authorities aim to ease payment of tax remittances from Ministries, Departments, and Agencies, leverage technology and third-party reporting to broaden the tax net and enhancing excise collections by transferring administrative responsibilities to the Federal Inland Revenue Service (FIRS).

“Excises on telecommunications, lotteries, and gambling are under consideration but have been delayed. The authorities’ planned reforms in 2025 include raising the VAT rate—while introducing input credits for services and assets—increased excises on tobacco and alcohol, and rationalization of tax incentives accompanied by a reduction of the corporate income tax (CIT) rate to enhance competitiveness.”

The IMF stressed that it would be important for the FG to have these measures, “finalised, quantified, and adopted with the 2025 budget”.

Noting that financial conditions in Nigeria remained loose in 2023, which, it said, contributed to naira weaknesses and surging inflation, the IMF projected that “with continued monetary tightening, inflation is projected to gradually decline to 24 per cent year-on-year at end-2024, helped by base effects.”

On developments in Nigeria’s forex market, the IMF noted that pressures on the naira persist notwithstanding substantial reforms.

According to the Fund, instead of the “one sided interventions in the FX market” that the CBN recently conducted, after a prolonged absence, to provide liquidity, the apex bank should: “Develop an explicit and transparent FXI strategy, which sets out a volatility metric and threshold that would trigger an intervention.

“Furthermore, FXIs should be conducted through an auction mechanism at market[1]based rates, with ex-post announcement of intervention amounts and rates.

“Such interventions should be symmetrical and temporary, which would also help preserve reserves. Interventions should not be used as a substitute for required macroeconomic policy adjustment needed to restore internal and external stability,” it added.

Similarly, highlighting the challenges posed by the rapid growth of transactions on FX trading platforms poses new challenges, the IMF recommended that “Global crypto trading platforms (should) be registered or licensed in Nigeria and subject to the same regulatory requirements applicable to financial intermediaries following the principle of same activity, same risk, and same regulation.”

It also advised that the country’s authorities should ensure the application of AML/CFT preventive controls by crypto trading platforms and other virtual asset service providers through effective AML/CFT risk-based supervision.

While noting that Nigeria’s financial sector remains stable, the IMF said asset quality is expected to deteriorate, adding that pockets of risk are emerging.

“At end-2023, most commercial banks reported profits thanks to FX valuation gains, and banks’ capital adequacy ratio (CAR) improved to 13.3 per cent.

“Three commercial banks that were unable to meet capital requirements have been placed under a special supervisory regime. Two development finance institutions are severely undercapitalised.

“Last year, CBN revoked the licenses of 132 insolvent microfinance banks, four mortgage banks, and three finance companies. NPLs stood at four per cent for commercial banks but are rapidly increasing at microfinance banks (14%), development finance institutions (19%), and mortgage banks (20%),” it stated.

New Telegraph

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