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IMF Warns of Potential 44% Inflation Rate in Nigeria Amid Economic Concerns

February 19, 2024

 

 

 

 

 

 

 

 

The International Monetary Fund (IMF) has issued a stark warning regarding Nigeria’s economic outlook, projecting a potential inflation rate surge to 44% if corrective measures are not taken swiftly.

The IMF’s assessment emphasizes the critical need for significant monetary policy tightening by the Central Bank of Nigeria (CBN) to mitigate the looming crisis.

Under the outlined scenario, the report foresees a precarious situation exacerbated by persistent pressure on the naira and the looming threat of a climate shock in early 2024.

Highlighting the interconnected nature of these challenges, the report underscores the potential for severe disruption to Nigeria’s economic stability without decisive action.

Furthermore, the IMF forecasts a possible 35% depreciation of the naira in 2024, intensifying the inflationary pressures gripping the nation.

The IMF noted: 

  • “An adverse scenario of an inflation-depreciation spiral combined with a climate shock would increase risks to Nigeria’s capacity to repay the Fund. Staff presented a downside scenario to the authorities with the following features: 
  • “Monetary policy is tightened insufficiently to bring down inflation below 20% and pressures on the naira persist. In addition, Nigeria is hit by another adverse climate shock in early 2024 (following severe flooding in late 2022) that exacerbates the current weakness in agriculture and leads to a decline in output and a surge in food prices.

“Given the absence of local production and the recent liberalization of commodity imports, the exchange rate would likely depreciate further—by an estimated 35% in 2024—and contribute to a further sharp rise in inflation, peaking at 44%, before monetary policy is eventually tightened sharply.”

Despite mounting economic challenges, the International Monetary Fund (IMF) maintains its confidence in Nigeria’s ability to repay its debts, contingent upon the continued prioritization of external debt servicing.

However, the IMF cautions that addressing pressing humanitarian concerns, such as escalating poverty and food insecurity, could jeopardize Nigeria’s capacity for timely debt repayment, necessitating significant trade-offs.

The uncertainty surrounding Nigeria’s net international reserves and the potential for further unforeseen shocks heightens the risk to both economic stability and the well-being of its citizens, according to the IMF’s assessment.

 

Credit: Nairametrics

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