Governor Godwin Emefiele of the Central Bank of Nigeria (CBN), has addressed a concern from the International Monetary Fund (IMF) as it relates to the apex bank’s credit intervention programme.
The Washington-based lender had advised CBN to scale back its credit intervention programmes.
According to IMF, credit intervention programmes floated so far are likely to cause market distortions in the long run.
As the recovery firms up, the CBN also needs to scale back its credit intervention programmes, which were ramped up as part of the COVID-19 crisis response.
“The CBN’s credit injection to the private sector, both direct lending and on-lending through banks, accounts for about 45 per cent of credit growth since 2020—significantly above the average of 12 per cent in pre-pandemic years.
“As banks exercised restraints in lending, the CBN interventions have provided financing to the underserved markets (e.g., agriculture) and mitigated the impact of the pandemic.
“However, they cannot be expanded indefinitely given likely efficiency costs and market distortions and its thorough review will be warranted,” IMF stated in its report titled, ‘Nigeria Staff Report for the 2021 Article IV Consultation.’
Reacting to the call, Emefiele said the intervention schemes have helped to stimulate consumption and growth as well as boosted Gross Domestic Product (GDP), adding that the apex the bank’s credit expansion drive had also stimulated the manufacturing sector and shielded businesses and households from the negative impact of the COVID-19 pandemic and other external vulnerabilities.
His words: “The truth is that the IMF I have to admit has been a great supporter and adviser to the CBN and to Nigeria. In terms of advise, I think it is important that we reiterate the fact that CBN remains a development finance-oriented central bank and it is very normal for a developing economy to deploy development finance tools through interventions to support the growth of the economy.
“Let’s not forget that about two years ago, the monetary policy said that our new thrust would be price and monetary stability that is conducive to growth.
“If we are to adopt price and monetary stability that is conducive to growth in an environment where there is a tight fiscal space, where revenue shortfalls abound and even government has to borrow, then I think it is just reasonable that central bank should step in to support the fiscal to fill that space and not through grants but through loans to our smallholder farmers, to our small and medium enterprises, through loans to our households, to wake up our manufacturing industries that are dead.”
