The World Bank has scored the monetary policies of the Central Bank of Nigeria (CBN) 4.5 marks on a scale of 6.
The score emerged from the World Bank’s 2012 and latest Country Policy and Institutional Assessment (CPIA) report. CPIA is meant to benchmark countries according to institutions and policy measures/reforms.
John Litwack, the World Bank’s lead economist in the Nigeria country office, disclosed this to BusinessDay, saying that the 4.5 rating for Nigeria is relatively high, considering that most of the nation’s peers, especially those in developing countries, scored at most 4 points on the average.
But a score of six would be absolutely perfect, Litwack, said.
Nigeria received 4 points in the bank’s 2011 assessment on monetary and exchange rate policies, even when Sub-Saharan Africa averaged 3.6.
The nation’s fiscal and debt policies also received high marks of 4 each in that year’s assessment ,when SSA’s average was 3.4and 3.3 respectively, in the two policies.
The CBN has long held on to its tight monetary stance since 2011 when it pushed up its benchmark lending rate to 12 percent, in a bid to reign in elevated inflation expectations. It also raised the Cash Reserve Requirement (CRR) for banks to 12 percent where it has remained till date.
Due to these measures, Nigeria’s inflation has in recent times moderated, staying at 9.1 percent in April, one of the lowest levels in almost five years. International reserves are also expected to continue to rise, buoyed by relatively high interest rates.
Nigeria’s dollar reserves which finished flat in 2011 despite elevated oil prices, rose to over $48 billion dollars as at June, 6. The naira has also remained relatively stable.
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“In terms of monetary policy, we feel that the measures of the Central Bank have been largely appropriate. During the time of banking crisis, monetary policy was loosened quite a bit, in order to facilitate recovery, but now that the banking sector has recovered, they have tightened it again.
“So generally, we give high marks to monetary policy. We have an exercise we call CPIA where we rate different countries according to different measures of economic policies, reforms, institutions in the World Bank. And this year, Nigeria received 4.5 for monetary policy, which is generally high for a developing country,” Litwack said in an interview.
The World Bank’s Country Policy and Institutional Assessment actually affects the allocation of the bank’s International Development Association (IDA) (concessional) money. States that receive higher CPIA ratings receive a somewhat larger share of the IDA money.
The CPIA rates countries against a set of 16 criteria grouped in four clusters, including, economic management, structural policies, policies for social inclusion and equity; and public sector management and institutions.
The criteria are focused on balancing the capture of key factors that foster growth and poverty reduction, with the need to avoid undue burden on the assessment process. To fully underscore the importance of the CPIA in the IDA Performance Based Allocations, the overall country score is referred to as the IDA Resource Allocation Index (IRAI).
The World bank is also impressed with the way the CBN was able to resolve Nigeria’s banking crisis, especially the setting up of the Asset Management Company of Nigeria (AMCON) which it said has been effective so far.
But the bank’s thinking is that the corporation should shut down and stop taking up more bad assets, since it has accomplished the banking sector resolution for which is was set, in order to avoid moral hazard.
His said, “We generally give high marks to the CBN. Their policies have been quite effective. When I came here, there was a very difficult situation in the banking sector , and the crisis decapitalised bank’s and the CBN managed this very well.
“We understand that the banking sector has now been recapitalised and been restored to health, even though there are still difficulties for many banks to reap good profits but those are the problems that would need to be tackled with time…so we think that this has been generally quite successful.
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