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The World Bank has stated that monetary policy tightening by the Central Bank of Nigeria (CBN) may not rein in inflation and remains a risk to Nigeria’s growth outlook.
The international lender disclosed this in its latest Global Economic Prospects titled, “Growth Stabilizing But at a Weak Pace” on Wednesday.
The report predicting the outlook for the rest of 2024 and 2025 pegged Nigeria’s economic growth rate at 3.3 per cent in 2024 same as its projection at the beginning of the year.
Furthermore, the bank projected Nigeria’s GDP to grow at 3.5 per cent in 2025.
It explained that growth will pick up from the 2.9 per cent recorded in 2023 due to the effect of the current administration’s reforms in the petroleum and forex exchange sector.
However, the report noted that the failure of monetary policy tightening by the Central Bank of Nigeria remains a risk to the outlook.
The Central Bank of Nigeria since this year has increased interest rates by a combined 750 basis points.
The report stated, “Growth in Nigeria is projected to pick up to 3.3 per cent this year and 3.5 per cent in 2025. After the macroeconomic reforms’ initial shock, economic conditions are expected to gradually improve, resulting in sustained, but still-modest growth in the non-oil economy. In addition, the oil sector is expected to stabilise as production somewhat recovers.”
“Risks to Nigeria’s growth outlook are substantial, including the possibility that the tightening of monetary policy stops short of reining in inflation.”
Nigerians have continued to bear the brunt of economic policies undertaken by the current administration including the removal of fuel subsidy and subsequent unification of the foreign exchange.
The ripple effect of the twin reforms has pushed inflation to the highest in 28 years and food inflation at 40.53 per cent.
In response to these, the Central Bank of Nigeria engaged in a bullish monetary policy tightening spree. The Monetary Policy Committee had raised the Monetary Policy Rate by 600 basis points from 18.75 per cent to 22.75 per cent, shortly after CBN Governor, Yemi Cardoso, assumed office.
This was followed by another 200 basis points hike and a further 150 bps increase to reach 26.25 per cent.
The naira has also experienced a decline of almost 100 per cent, depreciated to close 2023 at N907/$. In 2024, the naira has further weakened to around N1400/$ reaching a peak of about N1,600/$ around February.
Although the CBN stated that the hike in MPR was necessitated to tame inflation, that has not materialised.
The inflation rate in January before the MPR hike was 29.90 per cent, this has increased to 33.69 per cent in April 2023.
The report further added that public debt in Sub-Saharan Africa is expected to remain elevated over the forecast period If global interest rates remain high for longer than assumed in the baseline forecast.
It read, “With public debt-service costs having surged in many SSA economies since the pandemic, the need for debt reduction in highly indebted countries has become substantial. Many SSA economies tightened their monetary policy to address rising inflation, resulting in increased financing costs. Public debt is expected to remain elevated over the forecast period.
“If global interest rates remain high for longer than assumed in the baseline forecast, debt-service costs for SSA economies are likely to rise even further.
“When coupled with limited access to external financing favourable interest rates, rising financing costs could markedly increase the risks of government debt distress—especially because debt restructuring in several SSA countries has been hampered by coordination problems among a diverse group of creditors.”
