In a recent press conference, the International Monetary Fund (IMF) recommended that the Central Bank of Nigeria (CBN) take immediate measures to combat the country’s surging inflation by increasing interest rates in the upcoming Monetary Policy Committee (MPC) meeting.
IMF’s Concerns and Recommendations
Julie Kozack, the Director of the Communications Department at the IMF, highlighted the alarming inflation rate in Nigeria, which soared to over 27 percent in October on a year-on-year basis. Kozack attributed the inflationary pressures to the CBN’s strategy of withdrawing excess liquidity from the financial system.
She emphasized that the upcoming MPC meeting should prioritize raising the policy interest rate as part of the Central Bank’s efforts to address the persistent inflationary challenges. The IMF acknowledges the CBN’s recent actions under new leadership to curb excess liquidity but stresses the need for further measures.
Low Revenue-to-GDP Ratio and Fiscal Challenges
Addressing broader economic issues, Kozack underscored the imperative of increasing revenue from Nigeria’s remarkably low revenue-to-GDP ratio, currently standing at 9 percent. The IMF views this ratio as insufficient to support robust social safety nets and developmental spending crucial for meeting the country’s pressing needs.
In a significant revelation from the IMF’s Article IV Consultation held in February 2023, Kozack emphasized the essential role of raising revenue to create fiscal space for social and development expenditures. The IMF contends that a higher revenue-to-GDP ratio is crucial for building resilience, protecting vulnerable households, and addressing Nigeria’s developmental requirements.
2024 Budget Targets Fiscal Prudence
In her remarks, Kozack touched upon the goals of Nigeria’s 2024 budget, highlighting its commitment to reducing the fiscal deficit while allocating resources for priority spending in both social and developmental sectors. The IMF sees this approach as a step towards achieving fiscal responsibility and creating room for essential expenditures.
As Nigeria grapples with the economic challenges posed by high inflation, the recommendations from the IMF signal a call for proactive measures to stabilize the economy and foster sustainable development. The upcoming MPC meeting is anticipated to be a pivotal moment for the CBN to address these concerns and implement strategies to mitigate inflationary pressures.