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Code of Good Practices on Transparency in Monetary Policy
Insufficient Information Summary
According to all sources used for this report, Nigeria has been subject to decades of misguided policies, corruption, poor infrastructure, and weak institutions, which have had implications for its ability to comply with the Code of Good Practices on Transparency in Monetary Policy. The International Monetary Fund (IMF) has reported since 2005 that reforms have been in the works to address issues of capacity constraints and poor data management, and has noted that Nigeria needs focused technical assistance in these areas. In 2007, Nigeria enacted a new Central Bank of Nigeria (CBN) Act that conferred upon the central bank a greater degree of autonomy and set forth the CBN mandate. In addition, the CBN has implemented a new IT system aimed at facilitating its data gathering, and has made a great deal of monetary-related information available on its website. However, the IMF did note that the new IT system had the temporary and unanticipated effect of actually introducing discrepancies in monetary data, as the CBN failed to provide for the potential problems that accompany transitioning to a new system. While Nigeria has been working toward improving its monetary policy transparency regime, it remains unclear to what extent these initiatives will bring Nigeria into compliance with the IMF's Code of Transparency in Monetary Policy.
General Overview
In 2005, the International Monetary Fund (IMF) published an Article IV Consultation report that noted Nigeria's long history of corruption, bad management, and weak institutional and infrastructural support, which has implications for policy transparency. An important recommendation of this report, aimed at improving monetary policy transparency, was that the Central Bank of Nigeria (CBN) move, when feasible, to an inflation-targeting regime. The IMF's 2007 "Third Review" reported that long-standing problems of poor data management by the Central Bank of Nigeria (CBN) were exacerbated in 2006 when the CBN implemented a number of new software systems. During implementation, the CBN faced numerous problems, such as "significant accounting errors, difficulties in preparing monetary statistics, and substantial delays in data reporting to the Fund throughout the year" (p. 7). The IMF added that the CBN was working hard to resolve these problems. Further, the IMF noted that the CBN's ongoing problems with generating reliable data to inform its monetary policy had had the consequence of impeding the "effective analysis of monetary conditions, thus limiting the Central Bank's ability to respond more promptly to liquidity situations" (p. 7). Reform recommendations included exchange rate unification, stronger liquidity management practices, and enhanced central bank legal and operational independence.
The 2007 Article IV Consultation report (published in 2008), noted that some reforms affecting monetary policy transparency had been recently achieved. In that year, the Central Bank of Nigeria Act was passed, conferring greater independence on the CBN. However, the IMF asserted that "a credible mechanism for setting the inflation target (including possibly by the government) will be needed, as well as a strong internal and external communication policy" (p. 14). The IMF also recommended that the CBN "improve its understanding of inflation dynamics and the monetary transmission mechanism" as well as "build its understanding of market expectations in inflation and improve its measure of core inflation" (p. 14). According to the report, the CBN intends to adopt a new inflation-targeting regime in 2009, but recognized that some flexibility with the timeline might be required. In anticipation of that target date, however, the CBN was holding training sessions and seminars, with technical assistance from the IMF. During the transition period, the CBN would retain the use of monetary aggregates as its monetary policy anchor. The Statistical Issues Annex of the 2007 Article IV report asserted that monetary data remains problematic, noting that "the reporting of monetary data for IFS [International Finance Statistics] was recently interrupted because of major unresolved accounting problems at the CBN" (p. 60). These problems are attributed to the failure of the CBN to provide for a transitional period during which the old accounting system would run parallel to the implementation of the new accounting software, in order to allow for testing of the new system's operational reliability. This oversight has led to accounting distortions, but many of these problems have since been resolved. There are ongoing problems with under-reporting of balance-of-payments data in the area of private capital movements, and there are discrepancies in the trade data reported by the National Bureau of Statistics as compared to the figures reported by the CBN, due to the fact that the former relies on customs data and the latter uses banking data. CBN balance of payments data reported to the IMF was found to include "large negative errors of omissions" (p. 61). Also in 2007, the IMF published its Fourth Review report, in which it explicitly stated that "the staff welcomes improvements in monetary data and the policy decision-making process" (p. 15). This report noted that the CBN had made "significant advances" in this area.
In July of 2009, the IMF released an announcement marking the completion of the 2009 Article IV consultation mission (the full report is not yet available). According to the press release, the IMF again has emphasized the need for Nigeria to develop "a clear, consistent, and credible macroeconomic policy framework to help anchor expectations and reduce uncertainty." This would include the articulation of a clearly anchored monetary policy framework that is effectively communicated and implemented.
The CBN website discloses that it has implemented a four-phase initiative to implement efficiency, accountability, goal orientations, leadership, effectiveness, and staff motivation, called Project EAGLES. According to the CBN, it has now entered the final phase, after having conducted strategic analysis and putting in place the necessary technological and non-technological support structures. Phase IV is focused on the formulation and implementation of bank-wide strategies for the continuation of business; the uniform integration of systems and processes; and the creation of a strong knowledge-management platform. The website also reports that a new CBN Act was enacted in 2007, replacing the prior CBN Act and all its amendments. The provisions of the 2007 Act confers full autonomy on the central bank and establishes the CBN's objectives as ensuring monetary and price stability, in addition to serving as economic advisor to the government. According to the draft of the 2008 CBN Annual Report, the central bank's mission is "to be proactive in providing a stable framework for the economic development of Nigeria, through the effective, efficient, and transparent implementation of monetary and exchange rate policy and management of the financial sector."
According to the website of the West African Monetary Agency (WAMA), the CBN is one of eight West African central banks who are members of that organization. WAMA aims to "encourage and promote the application of market determined exchange rates for intra-regional trade, initiate policies and programs on monetary and economic integration and ensure the establishment of a single monetary zone in West Africa." A key aim of WAMA is to promote the regional harmonization of exchange rate policies, banking laws, statistics, and payment systems. Nigeria is not a subscriber to the IMF's Special Data Dissemination Standard (SDDS), but participates in the less prescriptive General Data Dissemination System (GDDS). According to the IMF GDDS website, problems remain with Nigeria's coverage, timeliness, and periodicity across many of the datasets monitored by the IMF.
The Principles
IIClarity of roles, responsibilities and objectives of central banks.
The Central Bank of Nigeria Act of 2007 is now the governing law for the CBN, replacing earlier legislation and amendments. This Act confers upon the CBN full autonomy, and establishes the CBN's objectives as ensuring monetary and price stability, in addition to serving as economic advisor to the government. In its 2007 Article IV report, the IMF agreed to the need to adopt an inflation-targeting regime and set a target date of 2009, while acknowledging that the timeline would have to remain flexible. However, there is insufficient information as to Nigeria's compliance with this principle.
IIOpen process for formulating and reporting monetary policy decisions.
The 2007 IMF report reported that the CBN is working with the Fund and the World Bank to develop "a clear, consistent, and credible macroeconomic policy framework to help anchor expectations and reduce uncertainty." This would include the articulation of a clearly anchored monetary policy framework that is effectively communicated and implemented. However, in the IMF's 2009 press release it was noted Nigeria continues to need to develop such a macroeconomic policy framework. However, there is insufficient information as to Nigeria's compliance with this principle.
IIPublic availability of information on monetary policy.
Nigeria is not a subscriber to the IMF's SDDS. Rather, it participates in the less prescriptive GDDS. According to the GDDS website, problems remain with Nigeria's coverage, timeliness, and periodicity of Nigeria's data across many of the datasets monitored by the IMF. The CBN website makes available to the public a wide range of monthly, quarterly, bi-annual, annual, and periodic reports, many of which relate to monetary policy. It notes that, since the initiative to network its bank branches was implemented, data collection has been facilitated. The website provides access to the central bank's online Monetary Policy Forum, which was established to improve communication with the public regarding monetary policy and its implementation. The Forum provides the opportunity for stakeholders to communicate with the bank, as well as providing a communications vehicle through which the bank may educate the public about its policies and functions. Also available through the CBN website are the bank's Annual Reports; monthly, quarterly, and biannual reports; press releases, speeches, and occasional papers; and CBN circulars, as well as a broad range of statistical data relevant to monetary policy. The GDDS website notes that the CBN provides an advanced released calendar for the "Monetary, Credit, Foreign Trade and Exchange Policy Guideline," "CBN Annual Report and Statement of Accounts," and "Half Year Economic and Financial Report." However, there is insufficient information as to Nigeria's compliance with this principle.
IIAccountability and assurances of integrity by the central bank.
The CBN website provides information on an initiative called "Project EAGLES" (for Efficiency, Accountability, Goal Oriented, Leadership, Effectiveness, and Staff Oriented), which specifically recognizes the CBN's need to improve its regulatory functions. The IMF's various reports over the years has noted that the CBN was working to improve the reputation of its monetary policy practices with regard to integrity and accountability, including a transition to more modern IT and procedures aimed at facilitating data collection and analysis. However, the IMF's 2007 Article IV report noted that the failure of the CBN to provide for transition procedures during the implementation of the new system has had the unanticipated consequence of introducing discrepancies in the monetary data. According to the report, these problems include "significant accounting errors, difficulties in preparing monetary statistics, and substantial delays in data reporting to the Fund throughout the year" (p. 7). The IMF added that the CBN was working hard to resolve these problems. Finally, the IMF's GDDS website for Nigeria notes that the CBN's legal charter includes a code of conduct that sets important ethical and professional standards to be observed by central bank officials and staff. Nonetheless, overall there is insufficient information as to Nigeria's compliance with this principle.
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