The recent Memorandum of Understanding (MoU) between the Federal Government and the Central Bank of Nigeria (CBN) on fiscal and monetary policy coordination has created a new test for how government borrowing, cash management and monetary policy are coordinated.
The Alliance for Economic Research and Ethics said in a statement on Tuesday, through its Chairman, Dele Oye.
Pinnacle Daily reports that the MoU was signed in Abuja on September 18 by Finance Minister and Coordinating Minister of the Economy, Taiwo Oyedele, and CBN Governor Olayemi Cardoso, four days before the central bank reset its Monetary Policy Rate (MPR) to 23 per cent.
The framework is designed to improve policy consistency, information sharing and economic forecasting while supporting efforts to reduce inflation sustainably. It also provides for closer coordination of government financing and cash management.
The Alliance said the framework should now be judged by whether the government and central bank bring financing, cash management, information exchange and economic assumptions into a disciplined process rather than allowing fiscal and monetary policies to work against each other.
The organisation cautioned against assuming that the MoU directly caused the CBN’s decision to reset the MPR, saying its timing alone does not establish a causal link.
However, it said the agreement provides a framework against which the government and the central bank can now be assessed.
“Coordination must never become fiscal dominance,” Oyedele reportedly said.
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The new framework comes as businesses continue to face high borrowing costs.
The latest CBN aggregate measures for August showed a prime lending rate of 17.86 per cent and a maximum lending rate of 29.20 per cent.
However, a change in the MPR does not automatically require banks to reduce every customer’s loan rate by the same amount.
The Alliance said the key issue would therefore be whether the new policy signal reaches businesses, households and productive investments, and how quickly that happens.
It also highlighted recent credit data as an important measure of whether fiscal and monetary coordination is producing results.
Net credit to government declined from about ₦33.92 trillion in July to ₦32.70 trillion in August, while credit to the private sector increased from ₦83.43 trillion to ₦84.55 trillion during the same period.
The organisation said the figures alone do not establish that government borrowing is currently crowding out private-sector credit.
However, it said they make transparent coordination of government financing and liquidity management an important test for the new MoU.
It called for the Finance Ministry to give the agreement practical content by building on the Debt Management Office’s existing debt issuance calendar and publishing a clear, regularly updated consolidated government financing calendar.
It also called for debt-issuance planning and government cash management to be aligned with liquidity forecasts, while fiscal assumptions should be clearly reconciled with the shared objective of macroeconomic stability.
The Alliance said the credibility of the framework would depend on whether the public could see its impact in government financing decisions and economic data, rather than only in official statements.
The MoU comes as the CBN on Tuesday reset the MPR from 26.5 per cent to 23 per cent, a reduction of 350 basis points, while inflation has continued to moderate.
Headline inflation fell from 15.93 per cent in May to 15.91 per cent in June, 15.43 per cent in July and 15.39 per cent in August.
The Alliance maintained that the combination of the rate reset and the new coordination framework had created an opportunity for lower financing costs, but stressed that the outcome would depend on how effectively the policy changes are transmitted to the wider economy.
Alex is a business journalist cum data enthusiast with the Pinnacle Daily. He can be reached via ealex@thepinnacleng.com, @ehime_alex on X