M. O. Ojo

Document Type

Occasional Paper

Publication Title

A review and appraisal of nigeria's experience with financial sector reform


The primary aim of the paper Is to highlight the policy reforms In Nigeria's financial sector since 1986, assess the results of the reform programme, and Identify the lessons that can be learned from the policy initiatives. The reform package was introduced in 1986 against the background of prolonged macro-economic distortions and economic deterioration, especially during the first half of the 1980s. Financial sector reforms under the aegis of the Structural Adjustment Programme were designed to induce more domestic savings and reduce the distortions in investment decisions. To this end, measures were introduced between 1986 and 1992 (the period covered by the review) to Improve the financial structure, monetary management, capital movements and the functioning of the foreign exchange and capital markets. The underlying philosophy of the measures was the primacy given to market factors and a strong regulatory framework In the allocation of resources. The findings of the study indicate that some of the goals of the reform programme have been achieved. Among others, the reform package has resulted in improved capital base, assets, savings, and competition. Despite the unstable macroeconomic environment, the monetary system performed better, especially with the deregulation of Interest rates, gradual reduction in credit controls and Implementation of open market operations. Financial sector reform also supported the observed increase In real economic activity during the period through increased credit and savings for private and public investment, as well as more appropriate exchange rates. The review identifies some of the lessons from the reform effort as the need for macroeconomic stability, an appropriate interest rate structure, adequate financial infrastructure and a more effective incentive framework to reduce the size of Informal markets. To sustain the financial reform process, the review concludes that new policy initiatives are needed in these areas.

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