Recent events at the AFRITAC West 2 Young Economist Research Contest for Central Bankers and Government Economists, have shown that capacity building is key for Nigeria and its governance institutions to compete favourably with their counterparts in global contests, writes MARK ITSIBOR.
Except in a few aspects or instances (entertainment, female football segment and health), Nigeria and Nigerians hardly win gold medals or distinguish themselves as serious competitors in global contests. The reason is usually blamed on the absence of human capital development, lacklustre leadership, poor standard of education and lack of set standards that should serve as a benchmark for a country like Nigeria.
According to the 2023–2024 UNDP Human Development Report (HDR) that was published in March 2024, Nigeria’s human capital development remains low at 0.548, categorizing the country as having low human development. The report emphasizes Nigeria’s significant loss in HDI due to inequality, estimated at 32.7 percent. Gender disparities persist, with a notable gap between male and female HDI values and a Gender Inequality Index (GII) ranking placing Nigeria poorly. Furthermore, Nigeria’s Multidimensional Poverty Index (MPI) indicates that 33 percent were multidimensionally poor in 2021.
That hitherto pathetic narration gave impetus to the accolades and pops that poured in for the economist with the financial markets department at the Central Bank of Nigeria, Mr. Hamza Abdul-Aziz on his emergence as one of the winners of the IMF/AFRITAC West 2 Young Economist Research Contest for Central Bankers and Government Economists. The event was part of the 10th-anniversary celebrations of the establishment of AFRITAC West.
In a letter to convey the outcome of the contest to Hamza, the director, AFRITAC West 2/IMF, Eva Jenkner wrote “We are very happy to inform you that your research paper, ‘The Role of Central Banks in Achieving an Optimal Monetary-Fiscal Policy Mix: A Case for IT Framework Transition in Nigeria’, was selected by the AFRITAC West 2 review selection panel as one of two winners. Congratulations!”
The contest which was open to all staff of central banks and government agencies in the IMF/AFRITAC West 2 Region comprising of Cape Verde, Gambia, Ghana, Liberia, Nigeria, and Sierra Leone, followed a rigorous selection process to determine the two best research entries.
The submission solely authored by Mr Abdul-Aziz on “The Role of Central Banks in Achieving an Optimal Monetary-Fiscal Policy Mix: A Case of IT Framework Transition in Nigeria” was adjudged one of the two best submissions. The co-winning entry was a submission on “An Assessment of the Impact of Tax Education Initiatives on Tax Compliance: A Case Study of the National Revenue Authority of Sierra Leone”, which was co-authored by Senior Economists at the National Revenue Authority in Sierra Leone.
At the award ceremony held in Praia, Cape Verde, on 18 June 2024, Mr Abdul-Aziz discussed his paper, highlighting the crucial role of committed and active Monetary policy as well as the autonomy of the CBN to rein in inflation, induce exchange rate appreciation, and yield better output performance in Nigeria.
Of course, his performance outside the shores of Nigeria got the CBN and other industry watchers excited. “The Management of the Bank is proud of this achievement by a staff of the institution, and it validates its decision to prioritise capacity building for the workforce,” the central bank said a message to commend the achievement that has again placed the nation’s financial system on global map. That has added to the CBN’s brag list of achievements.
The bank is not even alone here. A Ghana-based monetary policy analyst, Francis Izunaso, said every institution should advance to be reckoned with internally. He said the performance of the CBN representative at the IMF/AFRITAC event is a testament that the Central Bank of Nigeria is peopled with astute technocrats. “One of the standards for measuring an organization that has affiliation or connects with international brands (like the CBN) is the calibre of staff and the institutional models it deploys in its operations,” Izunaso said.
Hamza’s outshining of his colleagues on the global stage is attributable to the ongoing reforms, restructuring and capacity-building programmes of the management of the central bank. Flowing from the previous administration, the current administration of the apex led by Mr Olayemi Cardoso prides itself as a capacity builder for better central banking. “The central bank has a tradition of distinguishing itself with some of the best hands in the financial sector,” said Izunaso.
His research paper spoke for itself. It spoke about the issues that have defined the Nigerian economy, recent monetary policy decisions, inflationary pressure and the role of the CBN in the federal government. For instance, on the question of what the CBN’s inaction to fiscal deficit financing caused for monetary policy, the paper presenter said the muted behaviour of the CBN to the deficit financing of the government, particularly the monetary financing has led to a wide range of repercussions: loosen confidence from the public, as a result, controlling spending by economic agents even during inflationary was unachieved despite the active response of monetary policy to inflation. “As the government continue to spend, the economic agents would also anticipate upward future changes in prices and perhaps wages as suggested point out by (Mishkin, 2000), thus becoming difficult to keep prices at a stable level.”
Abdul-Aziz stressed that the setback from the monetary operations relates to the CBN’s quasi-fiscal measures which have significantly grown the bank’s balance sheet in recent years. According to Governor Cardoso, from 2014 to 2023, the CBN has injected over 10 trillion Naira into the economy.
According to the paper presenter, another consequence of the CBN’s responsiveness to fiscal deficit financing has been suppressing the money market rates. While adjusting the policy rate may signal a contractual path, it is expected that other complementary measures, such as OMO, would be used to ensure the money market rates stay aligned with the tight policy rates. Conversely, such actions are not taken proactively.
In Nigeria, the Central Bank recently adopted an inflation-targeting framework after the alleged failure of the monetary targeting framework to support the Bank in achieving its primary mandate of price stability. Among other factors, the sub-optimal monetary–fiscal policy mix, which often resulted in over expansions, has played a crucial role in such failure by resulting not only in uncontrolled inflation caused by excessive monetary expansions but also in other macroeconomic disturbances such as exchange rate depreciation, and fragile economic output.
That, implies that addressing such challenges remains highly important for the policy authorities to achieve the desired monetary policy goal even under the IT framework.
In line with some economic experts, Abdul-Aziz said the injections from the fiscal authority lower borrowing interest rates, which in turn leads to more than the desired spending level and, thus, more inflationary pressures.
What if the CBN had responded to the fiscal deficit financing? Abdul-Aziz’s resistance to monetary financing to the government beyond the statutory limit will ensure the right policy mix, assisting the CBN in achieving its inflation target and securing the opinion of the public.
One attention-dragging argument in his claims is the fact that GDP growth reacts to economic shocks positively and significantly, adding that
He held the panel in conviction when he alluded to the fact that inflation declines significantly until around the quarter when output growth closes to the trend, inflation ticks up, which signifies demand-pull pressures in that period.
Monetary and fiscal authorities always desire an optimal policy mix to produce balanced macroeconomic outcomes. Yet, achieving it has shown to be one of the most challenging tasks for policymakers. Such challenges often emanate when the two authorities pursue conflicting policy targets, or when either one or both authorities embrace a discretionary policy implementation strategy rather than a rule-based approach, which, in turn, leads to policy dominance or time inconsistency problems.
Under this situation, monetary policy (ensuring price stability) mostly becomes the affected policy component as highlighted in the literature and some theoretical prepositions.
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