Monetary policy tightening not enough to stem inflation, World Bank says

Contrary to the forecast of the International Monetary Fund (IMF), the World Bank said monetary policy tightening by the Central Bank of Nigeria (CBN) may not prove adequate to stem the spiraling inflation in the country as anticipated by analysts.

The IMF said, in spite of the myriad of challenges facing the Nigerian economy currently, the International Monetary Fund (IMF) in a recent statistic said the country’s economy will top $1.85 trillion in 2029, with inflation rate falling to 14 per cent.

The Fund specifically said, according to the IMF data, the inflation rate is anticipated to gradually decrease from 23 per cent in 2025 to 16 per cent in 2026, 15.4 per cent in 2027, and finally stabilize at 14 per cent in both 2028 and 2029.

But the World Bank in a report titled, “Global Economic Prospects” on the outlook for the rest of 2024 and 2025 saw the contrary.

In the report, the World Bank 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% in 2025.

It explained 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.

The Central Bank of Nigeria (CBN) since this year has increased interest rates by a combined 750 basis points.

The report stated, “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,” it added.

The IMF said projection for the economy is calculated on a Purchasing Power Parity (PPP), which is a metric used to compare the value of different currencies and their ability to buy the same things. It is used for comparing economic productivity and standards of living between countries.

This projected stabilization is a positive development for the Nigerian economy, which has been grappling with rising inflation and interest rates.

Nigeria’s economy has faced challenges in recent times, with increasing inflation and interest rates posing significant threats to economic growth and stability.

The Central Bank of Nigeria (CBN) has implemented various measures to tackle these challenges, including raising interest rates during the 295th MPC meeting in May 2024.

Economists have subsequently expressed concerns about the ongoing rise in inflation and interest rates, urging the government to address the underlying factors driving inflation, particularly food and transportation costs.

The prediction by the Washington-based institution suggests a significant growth trajectory for Nigeria’s economy over the next five years.

According to data compiled by the IMF, Nigeria’s gross domestic product in PPP terms has been on the increase and is projected to rise from $1.44 trillion in 2024 to $1.85 trillion in 2029.

In 2025, the country’s gross domestic product (GDP) in PPP terms is projected to stand at $1.52 trillion and increase to $1.58 trillion in 2026.

The IMF projected the growth will continue in 2027 to$1.67 trillion, and $1.75 trillion in 2028.

The data shows a consistent growth trend, with a notable increase of 5.5 per cent expected in 2029.

IMF also forecasted Nigeria’s share of global GDP based on PPP to reach 0.78 per cent by 2029.

This represents a slight increase from 0.77 per cent in 2023, indicating a steady growth trajectory for the country’s economy.

Nigeria’s purchasing power has declined due to the high cost of living and soaring inflation.

The inflation rate has been on an upward trend rising from 22.41 per cent in May 2023 to 33.69 percent in April 2024, while food inflation has climbed to 40.53 per cent from 24.82 per cent within the same period.