Monetary, Fiscal Coordination Key to Economic Recovery – CBN

The Central Bank of Nigeria’s (CBN) top executive and other experts have stressed the urgent need for stronger alignment between monetary and fiscal policies, saying policy contradictions remain a major cause of Nigeria’s macroeconomic instability.

Speaking on ‘aligning monetary and fiscal policy toward achieving a robust financial system: the CBN Perspective’, at a Finance Correspondents Association of Nigeria (FICAN) seminar in Lagos yesterday, Assistant Director, Monetary Policy department of the Central Bank of Nigeria (CBN, Dr Afangideh Johnson, noted that monetary and fiscal policies jointly shape the country’s macroeconomic conditions, particularly inflation, exchange rates, interest rates and overall financial-system stability.

He added that when the two arms of policy work “at cross-purposes,” the economy often slips into a cycle of rising prices, volatile exchange rates and heightened investor uncertainty.

In his paper, Chief Economic Strategist, ECOWAS Commission, Prof. Ken Ife, admitted that Nigeria’s monetary and fiscal authorities are moving to reset the country’s economic direction with a comprehensive framework aimed at restoring price stability, reducing inflation, strengthening the financial system and improving debt management.

According to him, Nigeria had in the past faced severe pressures stemming from fiscal dominance, deficit monetisation and inconsistent policy implementation, adding that these forces undermine the Bank’s ability to control inflation and stabilise the naira.

He noted that at the heart of the new push is a renewed insistence that the CBN must return firmly to its core mandate, which is keeping prices stable and maintaining a sound, resilient financial system.

He noted that a major feature of the new approach is the unfettered independence of the CBN, noting that monetary policy decisions, including adjustments of the monetary policy rate (MPR), must now be guided strictly by data, insulated from political pressure and aligned with global best practices, similar to how the US Federal Reserve resisted political influence in the build-up to the 2020 election cycle.

Ife also recognised recent improvements in Nigeria’s external position, including the rerouting of NNPC Limited’s revenues through the CBN, rising crude output and increased refined-product exports from the Dangote Refinery, which are expected to support a more stable exchange market.

He added that the newly-introduced Forex Code is designed to enhance transparency in the FX market, deepen the effectiveness of the managed float and attract greater inflows from foreign portfolio investors, diaspora remittances and exporters.