Obinna Chima and Nume Ekeghe in Washington DC
The International Monetary Fund (IMF), yesterday, advised the Central Bank of Nigeria (CBN) to maintain its monetary policy-tightening mood in order to cage inflation, which jumped to 21.91 per cent as of February.
The Washington-based institution, in its World Economic Outlook (WEO) titled, “A Rocky Recovery,” released yesterday, retained Nigeria’s Gross Domestic Product (GDP) growth projection for 2023 at 3.2 per cent.
Speaking at a press briefing to unveil the WEO at the on-going IMF/World Bank Spring meetings in Washington DC, Division Chief, Research Department, IMF, Daniel Leigh, said, “For Nigeria, our forecast is one of the most stable for this year. For 2023, it is same at 3.2 per cent and three per cent in 2024. So, this is an economy with very high inflation as well and this is why we have a forecast of about 20 per cent inflation for 2023.
“And one of our main recommendations is to tighten monetary policy to ensure that this inflation comes down towards the more target levels.”
Inflation in Nigeria has remained stubbornly high in the past few years. In response, the CBN has been gradually increasing its benchmark interest rate, the Monetary Policy Rate (MPR), since last year. Specifically, it has increased interest rate six times. It was raised to 13 per cent in May last year, 14 per cent in July; further increased to 15 per cent and 16.5 per cent between September and December 2022; 16.5 per cent in December 2022; 17.5 per cent in January 2023; and 18 per cent in March.
Speaking on the projection for Africa’s economy during the media briefing, Chief Economist and Director Research Department, IMF, Pierre-Olivier Gourinchas, noted that inflation for the region was still high, even as he forecasted a gradual decline for the region.
Gourinchas noted that the economy was being affected by external factors and the region was slated to have a slow growth in 2023.
The IMF official added, “This region is suffering from a strong funding squeeze. We already discussed that some of the countries that are facing very innovative spreads and a lot of them are already in the region.
“A lot of the challenges come from external factors that vary from the surge in energy prices and food prices as a consequence of the Russian invasion of Ukraine and the tension in energy markets is affecting the region.
“So we have a slow in growth for the region overall to about 3.6 per cent in 2023 from 3.9 per cent last year.
“We also have a situation where inflation is elevated, it’s double-digit inflation and is expected to come down from 16 per cent, to about 12.3 per cent, but still double-digit inflation. And, of course, the very important challenge for the region is as a result of these elevated food prices, we have a large number of people who are in situations of food insecurity and we estimate about something like 430 million people in a situation with food insecurity.”
Meanwhile, in a separate briefing to launch Global Financial Stability Report, Director, Monetary and Capital Markets Department, IMF, Tobias Adrian, alluded to the importance in tackling inflation.
Adrian said, “Fighting inflation is the very first order, but you do have to make sure that you know, the most vulnerable population is also taken care of. So, you may have to tighten fiscal policy as well but also provide support, to make sure that everybody can afford nutrition and at a shelter.”
Speaking on the banking crisis that led to the collapse of Silicon Valley Bank (SVB) and Signature Bank in the United States, Adrian said, “When the SVB turmoil hit, there was a sell-off of bank shares in the US in the euro area, but much less in emerging markets. And while there’s certainly a broad heterogeneity, in terms of the banking systems in emerging markets, in general, there’s a somewhat smaller share of ratio to securities portfolios that are losing value when interest rates are being raised and there’s a larger share of retail, so stickier deposits are relative to the kind of wholesale deposits that we have seen in SVB.”
Relatedly, IMF, in its WEO, retained Nigeria’s GDP growth projection for 2023 at 3.2 per cent. It however raised the country’s next year growth projection to three per cent, from the 2.9 per cent it forecast in January.
Global growth was, however, expected to decline from 3.4 per cent in 2022 to 2.8 per cent this year and expand to three per cent in 2024.
In January, IMF projected global growth at 2.9 per cent and 3.1 per cent in 2023 and 2024, respectively.
IMF stated, “For advanced economies, growth is projected to decline by half in 2023 to 1.3 per cent, before rising to 1.4 per cent in 2024.
“Although the forecast for 2023 is modestly higher (by 0.1 percentage point) than in the January 2023 WEO Update, it is well below the 2.6 per cent forecast of January 2022.
“About 90 per cent of advanced economies are projected to see a decline in growth in 2023. With the sharp slowdown, advanced economies are expected to see higher unemployment: a rise of 0.5 percentage point on average from 2022 to 2024.”