If precautionary fiscal measures and coordinated approach against inflation are not taken, inflation in Nigeria will deepen, the World Bank has warned.
The World Bank dropped the warning in its latest report, ‘Africa’s Pulse: An analysis of issues shaping Africa’s economic future (October 2023 | Volume 28).’
“If monetary and fiscal actions are not adequately coordinated to bring down inflation, the risk of de-anchoring inflation expectations would fuel further inflation, accelerate interest rate increases, and exacerbate the deceleration of economic activity,” it said.
According to the Bank, rebuilding fiscal space was essential to curbing inflation and supporting economic activity in Nigeria and other African countries.
It stressed that inflation had remained above target for a prolonged period and showed no sign of peaking in Nigeria and other African countries.
“Inflationary pressures in the region are still dominated by high food and fuel price inflation and the weakening of domestic currencies,” particularly in Nigeria and a few other countries.
“For these countries, independent central banks with a clear mandate, transparent decision-making, and accountable authorities are essential to curb inflation,” it suggested.
Similarly, the Bank stated in the report that the naira was among Africa’s worst-performing currencies since this year.
The Britton Wood financial institution explained that the naira weakened by nearly 40 per cent against the United States dollar since it was devalued in June, attributing the cause to the Central Bank’s recent policy of exchange rate unification.
“So far this year, the Nigerian naira and the Angolan kwanza are among the worst-performing currencies in the region: these currencies have posted a year-to-date depreciation of nearly 40 per cent.
“The weakening of the naira was triggered by the Central Bank’s decision to remove trading restrictions on the official market,” it said.
The organisation suggested that fiscal policies should be coordinated with monetary measures to achieve inflation targets and ensure the sustainability of public finances.
It pointed out that domestic resource mobilisation and greater spending efficiency were critical to mitigate fiscal and debt sustainability risks and bring down inflation.
Other currencies with significant losses so far in 2023 are those of South Sudan (33 per cent), Burundi (27 per cent), the Democratic Republic of Congo (18 per cent), Kenya (16 per cent), Zambia (12 per cent), Ghana (12 per cent), and Rwanda (11 per cent).
The World Bank had lauded Nigeria’s reform in the exchange rate unification and expressed concern that inflation had pushed an estimated four million more Nigerians into poverty in the first five months of 2023, the ICIR reported.
The ICIR had also reported that the World Bank urged the Nigerian authorities to stabilise the exchange rate to encourage fiscal discipline and increase investment inflows.
