Rethinking the Role of the Central Bank in Nigeria’s Economic Development
The central bank has traditionally been charged with the primary responsibility of ensuring price stability, known as “inflation targeting” in economic terms. However, a growing discussion surrounds the potential for central banks to broaden their remit to include a more proactive role in promoting economic growth and development, particularly within developing economies such as Nigeria.
In addition to the maintenance of price stability, central banks also bear the responsibility of ensuring financial stability and influencing key macroeconomic indicators to achieve desired outcomes. This extended mandate encompasses regulatory oversight to ensure the stability of the financial system and interventions aimed at supporting overall macroeconomic stability.
Recent changes in approach by Mr. Olayemi Cardoso, the current Governor of the Central Bank of Nigeria (CBN), departing from the interventionist approach of his predecessor, Mr. Godwin Emefiele, have ignited debate within the economic community. Emefiele’s CBN had directly interfered in sectors such as agriculture, aviation, mining, and power by injecting substantial funds with the objective of diversifying Nigeria’s economy, generating employment, and improving food security.
Advocates of this interventionist approach highlight achievements such as increased rice production, resulting in reduced reliance on imports. They argue that the CBN’s intervention was necessary due to ineffective policies from other stakeholders. However, critics point to issues such as loan repayment problems and the blurring of the CBN’s role as the lender of last resort, as well as exaggerated or unfulfilled gains in sectors like power and aviation.
The present state of the Nigerian economy presents significant challenges, including high inflation, high unemployment, low GDP growth, and foreign exchange scarcity. These issues, coupled with rising energy costs and unreliable electricity, have led to multinational departures and widespread business challenges.
It is evident that the CBN must adopt a more flexible approach that transcends rigidity in order to address these challenges. This should involve a critical assessment of past interventions to identify successes and failures, as well as learning from them. Interventions should be targeted and strategic, focusing on sectors with potential and collaborating with proficient banks. Additionally, increased collaboration with fiscal authorities is essential to avoid past pitfalls.
In conclusion, while maintaining price stability is crucial, central banks in developing economies such as Nigeria should not be confined to this role exclusively. They must strike a balance between inflation targeting and proactive interventions that support economic growth and development, taking into consideration the unique context and challenges of their respective economies.
Dr. Okolo, a chartered stockbroker and management consultant based in Lagos, provides these insights into the ongoing debate about the role of the Central Bank of Nigeria in driving economic development.
