Lagos: 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 at the ECOWAS Commission, made the call on Thursday at the 37th Finance Correspondents and Business Editors Seminar in Lagos.
According to News Agency of Nigeria, a robust financial system is one that is resilient to domestic and external shocks. Prof. Ife emphasized that such an economy should efficiently intermediate resources, protect consumer deposits, maintain market integrity, and provide necessary capital for economic growth. He highlighted the importance of managing and eliminating systemic risks, particularly those created by the historical tension between the Central Bank of Nigeria (CBN) and the Ministry of Finance.
Prof. Ife identified fiscal dominance as a major threat to the stability of the Nigerian financial system and fiscal stability. He explained that fiscal dominance occurs when the fiscal authority’s large, chronic borrowing needs constrain the independence and effectiveness of monetary policy. This situation compels the CBN to finance government deficits via Ways and Means Advances, injecting massive, non-sterilised liquidity into the economy. Such actions directly lead to high inflation, making the CBN a primary cause of the instability it is supposed to control.
He further stated that the role of the CBN is to ensure price stability and oversee the soundness of the financial system. Prof. Ife urged that the central bank’s tools must be used consistently and predictably to inspire and maintain investor confidence. He stressed the importance of the CBN prioritizing its legal mandate of price stability, noting that achieving sustained disinflation is vital for financial system health. High inflation, he warned, distorts pricing, creates negative real interest rates, discourages savings, and undermines long-term investments.
Prof. Ife concluded by urging that monetary policy decisions should be made based solely on economic data, free from the political pressure of short-term fiscal needs.