The International Monetary Fund (IMF), on Tuesday, advised the Central Bank of Nigeria (CBN) to maintain its monetary policy-tightening mood in order to cage inflation, which jumped to 21.91% as of February.
The Washington-based institution, in its World Economic Outlook (WEO) titled, “A Rocky Recovery,” released Tuesday, retained Nigeria’s Gross Domestic Product (GDP) growth projection for 2023 at 3.2%.
Speaking at a press briefing to unveil the WEO at the ongoing IMF/World Bank Spring meetings in Washington DC, Division Chief, Research Department, IMF, Daniel Leigh, said, “For Nigeria, our forecast is one of the most stable for this year. For 2023, it is same at 3.2%, and 3% in 2024. So, this is an economy with very high inflation as well and this is why we have a forecast of about 2030 inflation for 2023.
“And one of our main recommendations is to tighten monetary policy to ensure that this inflation comes down towards the more target levels.”
Inflation in Nigeria has remained stubbornly high in the past few years. In response, the CBN has been gradually increasing its benchmark interest rate, the Monetary Policy Rate (MPR), since last year. Specifically, it has increased interest rates 6 times. It was raised to 13% in May last year, 14% in July; further increased to 15% and 16.5% between September and December 2022; 16.5% in December 2022; 17.5% in January 2023; and 18% in March.
Speaking on the projection for Africa’s economy during the media briefing, Chief Economist and Director Research Department, IMF, Pierre-Olivier Gourinchas, noted that inflation for the region was still high, even as he forecasted a gradual decline for the region.
Gourinchas noted that the economy was being affected by external factors and the region was slated to have a slow growth in 2023.
The IMF official added, “This region is suffering from a strong funding squeeze. We already discussed that some of the countries that are facing very innovative spreads and a lot of them are already in the region.
“A lot of the challenges come from external factors that vary from the surge in energy prices and food prices as a consequence of the Russian invasion of Ukraine and the tension in energy markets is affecting the region.
“So we have a slow in growth for the region overall to about 3.6% in 2023 from 3.9% last year.
“We also have a situation where inflation is elevated, it’s double-digit inflation and is expected to come down from 16% to about 12.3%, but still double-digit inflation. And, of course, the very important challenge for the region is as a result of these elevated food prices, we have a large number of people who are in situations of food insecurity and we estimate about something like 430 million people in a situation with food insecurity.”
Meanwhile, in a separate briefing to launch Global Financial Stability Report, Director, Monetary and Capital Markets Department, IMF, Tobias Adrian, alluded to the importance in tackling inflation.
Adrian said, “Fighting inflation is the very first order, but you do have to make sure that you know, the most vulnerable population is also taken care of. So, you may have to tighten fiscal policy as well but also provide support, to make sure that everybody can afford nutrition and at a shelter.”
Speaking on the banking crisis that led to the collapse of Silicon Valley Bank (SVB) and Signature Bank in the United States, Adrian said, “When the SVB turmoil hit, there was a sell-off of bank shares in the US in the euro area, but much less in emerging markets. And while there’s certainly a broad heterogeneity, in terms of the banking systems in emerging markets, in general, there’s a somewhat smaller share of ratio to securities portfolios that are losing value when interest rates are being raised and there’s a larger share of retail, so stickier deposits are relative to the kind of wholesale deposits that we have seen in SVB.”
Relatedly, IMF, in its WEO, retained Nigeria’s GDP growth projection for 2023 at 3.2%. It however raised the country’s next year growth projection to 3%, from the 2.9% it forecast in January.
Global growth was, however, expected to decline from 3.4%t in 2022 to 2.8% this year and expand to 3% in 2024.
In January, IMF projected global growth at 2.9% and 3.1%t in 2023 and 2024, respectively.
IMF stated, “For advanced economies, growth is projected to decline by half in 2023 to 1.3%, before rising to 1.4% in 2024.
“Although the forecast for 2023 is modestly higher (by 0.1 percentage point) than in the January 2023 WEO Update, it is well below the 2.6% forecast of January 2022.
“About 90% of advanced economies are projected to see a decline in growth in 2023. With the sharp slowdown, advanced economies are expected to see higher unemployment: a rise of 0.5 percentage point on average from 2022 to 2024.”
