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Sunday, February 25, 2024

IMF report highlights Nigeria’s worsening cost-of-living crisis

Stalled growth, poverty, and high food insecurity contribute to economic woes, says global lender

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The International Monetary Fund (IMF) has issued a stark assessment of Nigeria’s economic challenges, pointing to stalled per-capita growth, widespread poverty, and soaring food insecurity as key drivers of the country’s ongoing cost-of-living crisis.

In its latest report titled ‘IMF Executive Board Concludes Post Financing Assessment with Nigeria,’ the global lender highlighted a confluence of factors including rising inflation, exchange rate volatility, sluggish economic growth, and business closures exacerbating Nigeria’s economic woes.

The report underscored the impact of low revenue collection on service provision and public investment, citing headline inflation at 27 percent year-on-year in October, with food inflation reaching a staggering 32 percent. These figures reflect the fallout from fuel subsidy removal, currency depreciation, and agricultural challenges.

“Nigeria faces a difficult external environment and wide-ranging domestic challenges,” the report stated, emphasizing the scarcity of external financing and the surge in global food prices due to conflict and geopolitical tensions.

The IMF acknowledged Nigeria’s limited fiscal space and low reserves, constraining policy options. Despite these constraints, it commended the government’s efforts to restore macroeconomic stability and foster sustainable, inclusive growth.

The report noted recent policy reforms, including fuel subsidy removal and exchange rate unification, signaling a shift towards addressing deep-rooted structural issues. It praised the Central Bank of Nigeria’s focus on price stability and the government’s efforts to enhance domestic revenue mobilization.

Nigeria’s debt obligations have also raised concerns, with the country owing the IMF $2.8 billion. The government’s plan to allocate approximately N8.2 trillion to debt servicing in the 2024 budget has raised alarm bells among analysts.

Professional services firm PricewaterhouseCoopers (PwC) warned that rising debt service costs could strain Nigeria’s debt servicing capacity, credit rating outlook, and borrowing costs. PwC projected a rise in debt service expenditure from N8.25 trillion in 2024 to N11.1 trillion in 2026, highlighting the government’s reliance on domestic borrowing to fund deficits.

As Nigeria grapples with mounting economic challenges, the IMF report underscores the urgent need for comprehensive reforms to address structural weaknesses and promote sustainable economic growth.

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