Nigeria’s inflation rate is expected to drop to 15.5 per cent in 2025 and 23 per cent in 2024, according to the International Monetary Fund.
The IMF’s Division Chief of Research Department, Daniel Leigh, made a suggestion about this during the recent World Economic Outlook update press conference.
As of December 2023, Nigeria’s inflation rate was 28.92 per cent and had been rising for 11 months.
Leigh responded to the Central Bank of Nigeria’s foreign exchange measures aimed at reducing inflation and the naira’s wild slide by saying the central bank’s monetary tightening policy will be beneficial.
Leigh stated that the weak naira as a result of the banking regulator’s reforms is one of the factors contributing to inflation.
“Now, there are additional structural factors behind that high inflation, such as the financing of the deficit on the fiscal side,” he said. However, this is obviously causing difficulties. Our viewpoint is that reducing inflation should be our first focus.
Additionally, the CBN has hiked interest rates to 18.8 per cent, a considerable increase over the previous year. Thus, the monetary tightening is contributing to our prediction that inflation will decline from 24.6 per cent in 2023 to 23 per cent this year and then drop to 15.5 per cent in 2025, which is closer to single digits.
Leigh contends that Nigeria should emphasise revenue mobilisation and expand its tax base in order to finance social services, even as it continues to tighten its monetary policy in an effort to combat inflation.
The difficulty lies in finding room in the budget for social assistance programmes in addition to combating inflation through monetary tightening.
Leigh continued, “Our view is that increasing revenue mobilisation, bolstering revenue administration, and expanding the tax base are what will create space for development spending while preserving fiscal sustainability.”