As against predictions by analysts, tightening of the monetary policy by the Central Bank of Nigeria (CBN) might not effectively curb inflation, according to the World Bank.
In its recent report titled, “Global Economic Prospects” on the outlook for the rest of 2024 and 2025, the World Bank rated Nigeria’s economic growth at 3.3% in 2024 as projected at the beginning of the year.
The World Bank also projected Nigeria’s GDP to grow at 3.5% in 2025, explaining that growth will pick up from the 2.9% 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 (CBN) remains a risk to the outlook.
According to the report, “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.
“Risks to Nigeria’s growth outlook are substantial, including the possibility that the tightening of monetary policy stops short of reining in inflation,” the report said.
The CBN since this year has increased interest rates by a combined 750 basis points.
Following the removal of fuel subsidy and subsequent unification of the foreign exchange which are President Bola Tinubu’s twin reforms, the naira depreciated to close 2023 at N907/$, declining at almost 100 per cent.
In 2024, the naira has further weakened to around N1400/$ reaching a peak of about N1,600/$ around February.
The World Bank also said 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.
“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,” the report said.
“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.”
VANGUARD
