Parthian Partners cautions against CBN’s 75% CRR policy
Parthian Partners has cautioned against implementing the recent decision to impose a 75 percent Cash Reserve Ratio (CRR) on non-TSA public sector deposits, describing it as a well-intentioned but potentially harmful policy that could derail Nigeria’s fragile economic recovery.
The firm, in a research note titled “Avoiding a Damaging Cure: Preventing the CBN’s 75 Percent CRR on Non-TSA Public Funds from Hurting the Recovery,” warned that while the Central Bank’s intent to curb inflation and mop up excess liquidity is understandable, the approach adopted could have unintended and damaging consequences for fiscal operations, governance, and the banking sector.
According to analysts at Parthian Partners, the CBN’s move to sterilise three-quarters of state and parastatal funds held outside the Treasury Single Account represents a blunt policy instrument that risks undermining service delivery and disrupting the gradual recovery the economy has begun to record. The firm noted that policy design should consider timing, sequencing, and stakeholder consultation, stressing that the hasty implementation of such a measure could strain both public finance and the private sector.
It observed that state governments that maintain working balances with commercial banks will suddenly find large portions of their funds inaccessible for payrolls, contractor payments, and social programmes, resulting in stalled projects and delayed salaries. This, Parthian warned, could heighten political tensions, as the move may be viewed as an intrusion into state fiscal autonomy at a time when inter-governmental cooperation is crucial for sustaining economic growth. While acknowledging that channeling more funds through the Treasury Single Account could improve transparency and oversight, Parthian Partners argued that doing so abruptly, without transitional liquidity support, will undermine fiscal planning and the delivery of essential public services.
The firm further cautioned that the policy could weaken bank lending and tighten credit conditions, as commercial banks would be compelled to lock away a significant share of their deposits with the CBN. This would likely limit the availability of funds for private sector borrowing, making loans more expensive and stifling investment and job creation. It added that the combination of lowering the Monetary Policy Rate while sharply restricting bank liquidity sends conflicting signals to the market, potentially confusing investors and complicating monetary policy transmission.
Parthian Partners emphasis
ed that Nigeria’s recent signs of growth and disinflation could be jeopardized if the CRR policy triggers a liquidity shock that stalls public spending and constrains credit to businesses. A slowdown in these areas, it warned, would delay the country’s recovery trajectory and worsen poverty-reduction efforts.
The research firm recommended that the CBN adopt a phased implementation strategy, allowing both states and banks to adjust gradually to the new requirement without triggering a sudden cash crunch. It suggested that temporary liquidity windows be created to support critical public expenditures and that transitional exemptions be granted for capital project accounts to ensure continuity of essential services. In addition, Parthian Partners called for deeper consultation and coordination between the CBN, state treasuries, and finance ministries to achieve a balance between fiscal accountability and operational feasibility.
Parthian Partners concluded that while the CBN’s objective of maintaining price stability is legitimate, policy effectiveness must be matched by realism and collaboration. The firm warned that enforcing the 75 percent CRR on non-TSA public funds could yield a short-term liquidity gain but at the cost of long-term economic disruption. It urged the central bank to engage with relevant stakeholders, reconsider the pace of implementation, and introduce measures to cushion the immediate impact on state finances and bank lending. “Macroeconomic stability and effective public service delivery are not opposing goals,” Parthian Partners stated, “and pursuing one at the expense of the other will only prolong Nigeria’s recovery and deepen structural weaknesses.”
