The World Bank has warned that the Central Bank of Nigeria’s (CBN) tightening of monetary policy will not effectively address inflation in the country.
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The Bretton Woods institution disclosed this in its global economic prospects report released on Wednesday.
According to the World Bank, one of the risks to Nigerian economic growth is a failure to tighten inflation policies.
“Risks to Nigeria’s growth outlook are substantial, including the possibility that the tightening of monetary policy stops short of reining in inflation,” said the World Bank in its report titled Global Economic Prospects.
Despite the CBN’s increase in interest rates from 22.75% to 26.25% since February, the World Bank predicts that Nigeria’s economic growth will remain modest, at 3.3% in 2024 and 3.5% in 2025.
It added that 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 and noted that the oil sector is expected to stabilise as production somewhat recovers,” it stressed.
It stated, “Growth in Sub-Saharan Africa (SSA) weakened to 3 per cent in 2023. Growth in the region’s three largest economies (Angola, Nigeria, and South Africa) remained weak, holding back growth in the region. In early 2024, private sector activity picked up alongside a strengthening global economy. At the same time, many economies in the region continue to struggle with weak government balance sheets, stemming partly from low revenue collection and high debt-service costs, while some also need to manage the adverse effects of currency depreciations.
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“Although inflation generally fell through 2023, it edged up again in early 2024, partly driven by food price inflation. Continued high, and partly rising, headline inflation, particularly in several larger SSA economies (Angola, Ethiopia, Ghana, Nigeria), prompted interest rate hikes in some cases.
Food insecurity has remained high, with an estimated 135 million people in the region suffering from acute food insecurity in the form of a food crisis or worse conditions in 2024 (FSIN and GNAFC 2024). Prolonged droughts in parts of east Africa and floods in parts of southern Africa, as well as intense and protracted violent conflict in countries of the Sahel zone and in the Horn of Africa, have contributed to high levels of food insecurity.
“In Nigeria, growth slowed to 2.9 percent in 2023. Despite ongoing macroeconomic adjustments, the economy has held up reasonably well in early 2024. Oil production has picked up since mid 2023 . To rein in soaring inflation, which exceeded 30 percent year-on-year in early 2024, the central bank has tightened its monetary policy stance substantially, including by hiking the policy rate by a total of 600 basis points to 24.75 percent
“Growth in Nigeria is projected to pick up to 3.3 percent this year and 3.5 percent 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 stabilize 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.”
