Research Document: The Imperatives for Monetary-Fiscal Alignment in Nigeria and Pathways to Improved Policy Coordination

Posted Wed, Nov 29, 2023 10:40 AM

The macroeconomic policy environment in Nigeria has been complicated by myriad external and domestic shocks that have confronted the economy over the years. Other legacy structural bottlenecks have also constrained the economy from reaching its full potential and limited the effectiveness of policy measures. This Brief highlights the role of monetary–fiscal coordination in promoting sustainable economic growth and addressing the challenges of macroeconomic instabilities in Nigeria. It suggests pathways to improving policy coordination in an environment characterised by resource dependence, inefficient fiscal spending, and institutional constraints. The suggested pathways include improved communication and transparency around monetary and fiscal policies, improved data sharing and analysis, the establishment of a fiscal council, adherence to fiscal rules, alignment of objectives and policy frameworks, the establishment of a monetary policy framework agreement, revamping the Monetary Policy Forum, diversification of the economy, and strengthening of the country’s Sovereign Wealth Fund. If carefully implemented, these measures will help overcome macroeconomic policy coordination challenges and ensure that monetary and fiscal policies are complementary. These measures will also help ensure that monetary and fiscal policies are effectively and efficiently implemented to achieve the country's macroeconomic objectives.