In a press briefing on the January 2024 World Economic Outlook (WEO) Update in Sandton, South Africa, the International Monetary Fund (IMF) highlighted that the high inflation rate in Nigeria is a significant source of hardship for its citizens. Daniel Leigh, IMF’s Division Chief, Research Department, emphasized the adverse impact of inflation on Nigerians and identified naira weakness as a contributing factor.
Leigh acknowledged that currency depreciation and structural factors, such as the financing of deficits by the Central Bank of Nigeria (CBN), have led to the rising inflation. He underscored the importance of addressing inflation as a top priority for the country.
“There were reforms and the currency depreciated, and some of this weakness in the naira has contributed to the increase in inflation. Now there’s also structural factors behind that high inflation, including, you know, on the fiscal side, financing of the deficit. But this is clearly creating hardship,” said Leigh.
To combat inflation, the Central Bank of Nigeria has already implemented significant monetary tightening, raising interest rates to 18.8 percent over the past year. The IMF’s forecast anticipates a gradual decline in inflation from 24.6 percent in 2023 to 23 percent in 2024 and aims to reach closer to single digits by 2025 at 15.5 percent.
However, Leigh emphasized the need for additional measures beyond monetary tightening, stating, “But on top of conquering inflation through the monetary tightening, there’s also a need to provide the social support through the budget. And creating the space for that is the challenge.”
The IMF recommended more revenue mobilization, strengthening revenue administration, and widening the tax base to create space for development spending while safeguarding fiscal sustainability.
In its latest WEO Update, the IMF downgraded Nigeria’s growth forecast to 3.0% in 2024, down from the earlier prediction of 3.1%. Leigh explained that the downgrade was influenced by lower-than-expected outcomes in 2023, coupled with external shocks, including high borrowing costs, constraining domestic investment and spending.
The downgrade raises concerns about the economic outlook for Nigeria. With inflation at 28.92%, urgent and comprehensive measures are essential to address the challenges and ensure the country’s economic stability and well-being of its citizens.