Nigeria suffers from the legacy of decades of misguided policies, corruption, the poor state of basic infrastructure, and weak institutions, according to a February 2005 International Monetary Fund (IMF) report. The reform program in place meets resistance from entrenched interests, which may make it difficult to pass crucial legislation. Capacity constraints and poor data management impede the pace of reform implementation, requiring more focused technical assistance, stronger donor coordination, and careful reform prioritization. To overcome these obstacles, the IMF and the structural reform agenda of Nigeria are focused on improving governance and transparency, enhancing the efficiency of the public sector, and improving the business environment. In particular, the IMF supports plans to institutionalize reforms with several important bills now being discussed in the National Assembly. However, it is unclear to which extent these initiatives will put Nigeria into compliance with the IMF's Code of Transparency in Monetary Policy.

General Overview

Nigeria has had a long history of corruption, bad management, and weak institutional and infrastructural support, all of which have undermined its ability to perform adequately with regard to transparency in its monetary policy formulation and implementation, reports a February 2005 International Monetary Fund (IMF) report for countries under intensified surveillance. According to the IMF 2007 Country Report No. 263, long-standing problems of poor data management have been exacerbated by the Central Bank of Nigeria's (CBN) 2006 conversion to new software systems. 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.

In its February 2005 report, the IMF noted that reform efforts were subject to strong resistance by a variety of interest groups which impeded the passage of needed legislation. Nonetheless, that report noted that the Nigerian National Assembly was considering several much-needed pieces of legislation, including bills aimed at reforming the CBN. At the time of the February 2005 report, the IMF recommended a number of improvements to the CBN authorities. These were aimed at improving transparency -- particularly at improving data collection and reconciliation procedures. Other recommendations included engaging in more frequent reviews of its monetary program, and making available to the public more frequent reports on its policies and performance. In its 2007 "Third Review" report, 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). Additional reform recommendations include exchange rate unification (Nigeria currently applies four distinct exchange rates), stronger liquidity management practices, and enhanced central bank legal and operational independence.

According to the CBN website, the central bank was established by the provisions of the Central Bank Act of 1958. The Central Bank Act and the subsequent Banking Decree of 1969 together provide the legislative framework within which the CBN operates. Until the 1990s, these laws provided the CBN with some limited autonomy, but in 1997 the CBN was placed under the authority of the Ministry of Finance by executive decree. In 1998, a new decree returned some operational autonomy to the central bank. By statute, the CBN is responsible for issuing currency, maintaining external reserves, maintaining currency stability on the foreign exchange markets, promoting monetary stability, and serving as the government's banker. An important aspect of the CBN's activities in 2006 was the consolidation of the banking sector. The CBN's 2006 Annual Report (published in 2007) specifically addresses monetary policy transparency issues thus: "In order to enhance transparency in monetary policy implementation, the CBN organized the 11th Monetary Policy Forum, with the theme 'Monetary Policy after Banking Consolidation,' which was aimed at sustaining regular interaction with stakeholders" (p. xxxiv).

According to the website maintained by the Economic Community of West African States, the CBN participates in the West African Monetary Agency (WAMA), an affiliation of eight West African central banks that 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, but the website goes on to note that, since the CBN has successfully networked its bank branches, data collection has been facilitated.

The Principles

Clarity of roles, responsibilities and objectives of central banks.

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The Central Bank of Nigeria Act (1958) sets forth the CBN's primary objectives. These are to issue currency; maintain the currency's value on the international market; promote monetary stability and a sound financial sector; and serve as banker to the federal government, the Nigerian banking sector as a whole, and for banks located abroad. In 2007, according to the IMF's report of that year, the CBN did, however, shift its long-held focus on price- and exchange-rate stability to include a greater emphasis on inflation targeting. Problems of excess liquidity in the banking system, as noted in the OECD's 2004 report, is managed by the CBN primarily through open-market operations and the establishment of a cash reserve requirement. In the IMF's 2007 "Third Review" report it is noted that the CBN's recent bank consolidation efforts have yielded a more stable banking sector. However, there is insufficient information as to Nigeria's compliance with this principle.

Open process for formulating and reporting monetary policy decisions.

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A 2004 report by the Organization for Economic Cooperation and Development (OECD) notes that the CBN sets its monetary policy within the context of a medium-term framework with a two-year time horizon. According to the report, this should help to insulate monetary policy from the temptation to over-react in the face of temporary shocks. In addition, the 2007 IMF report notes that the CBN is working with the Fund and the World Bank to develop a medium-to-long-term Financial Sector Strategy (called the FSS 2020), which is also intended to make policy formulation more transparent. According to the CBN's 2004 report, the Monetary Policy Forum is intended to provide a vehicle by which the central bank can conduct a dialog with stakeholders, both to communicate its policy decisions and to solicit feedback and suggestions in return.

Public availability of information on monetary policy.

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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. However, the website goes on to note that, since the CBN has successfully networked its bank branches, data collection has been facilitated. The CBN website discloses that its online Monetary Policy Forum 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 2004 IMF Article IV report (published in 2005) makes a number of specific observations as to how the CBN could enhance its public information programs. These include the regular publication of its monetary policy stance, instruments, and objectives, with explanations offered when outcomes differed from expectations, and including an elaboration of the methodologies and analytical underpinnings that go into the formulation of policies. 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.

Accountability and assurances of integrity by the central bank.

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In an article originally posted to the Nigeria Business Information site in 2001, the CBN reported on its ongoing restructuring program, citing among its goals the promotion of efficiency, the attainment of cost-effectiveness, and the restoration of integrity. The program, called "Project EAGLES" (for Efficiency, Accountability, Goal Oriented, Leadership, Effectiveness, and Staff Oriented), specifically recognizes the CBN's need to improve its regulatory functions. In its 2004 Annual Report, the CBN noted that one outcome of the EAGLES project was the reduction of redundancy in the central bank's organization, resulting in a drop in the number of departments from 23 to 17. The 2004 Annual Report adds that the CBN was implementing new IT systems in order to facilitate the collection and analysis of monetary data. However, the IMF's 2007 report notes that the new IT systems have had the unanticipated consequence of introducing discrepancies in the monetary data during the initial stages of their implementation (which took place in 2006). 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.