By Kadiri Abdulrahman
A renowned economist, Prof. Ken Ife, has called for the alignment of monetary and fiscal policies towards achieving a robust financial system in Nigeria.
Ife, the Chief Economic Strategist, ECOWAS Commission, made the call on Thursday at the 37th Finance Correspondents and Business Editors Seminar in Lagos.
According to him, a robust financial system is one that is resilient to domestic and external shocks.
He said that such an economy should be able to efficiently intermediate resources, protect consumer deposits, maintain market integrity, and provide the necessary capital for economic growth.
“This involves managing and eliminating systemic risks created by the historical tension between the Central Bank of Nigeria (CBN) and the Ministry of Finance,” he said.
Ife said that the major threat to the stability of the Nigerian financial system and fiscal stability was fiscal dominance.
“This occurs when the fiscal authority’s large, chronic borrowing needs (budget deficits) constrain the independence and effectiveness of monetary policy.
“The CBN is always compelled to finance government deficits via Ways and Means Advances.
“This injects massive, non-sterilised liquidity into the economy, directly leading to high inflation and making the CBN the primary cause of instability it is mandated to control,” he said.
Ife said that the role of the CBN was to ensure price stability and oversee the soundness of the financial system.
He said that its tools must be used consistently and predictably to inspire and maintain investor confidence in the financial system.
He urged the apex bank to prioritise its legal mandate of price stability.
“Achieving sustained disinflation is the most critical contribution to financial system health, as high inflation distorts pricing, creates negative real interest rate, discourages savings and undermines long-term investments.
“Monetary policy decisions must be made solely based on economic data, free from political pressure of short-term fiscal needs,” he said. (NAN)(www.nannews.ng)
Edited by Deji Abdulwahab
