The World Bank Group has said that the Central Bank of Nigeria must stay the course in its attempt to tackle inflation.
This was revealed by the Senior Economist for Nigeria, World Bank Group, Dr Sameer Matta, at the launch of the 2025 Macroeconomic Outlook of the Nigerian Economic Summit Group themed ‘Stabilisation in Transition: Rethinking Reform Strategies For 2025 and Beyond.’
The Monetary Policy Committee of the CBN hiked the benchmark rates a cumulative 875 basis points in 2024 to tackle rising inflation.
Speaking during a panel session at the event, Matta said, “I think what is critical in terms of inflation is to stay the course. I think that the central bank needs to continue to be focused on making sure that inflation is under control. Obviously, part of it is related to the supply side. What can be done to improve the yield on the agriculture side? What can be done to improve the link between the rural areas and the urban areas?
“There is the question of what can be done on the trade policy side. One would be to increase production locally, but that would take time. One of the things that can be done on the trade policy side is to think through which sectors could be targeted to allow some tariffs to be adjusted.”
Matta went on to explain that the cost of not doing reform was two per cent of GDP for fuel subsidy and three per cent of GDP for FX subsidy.
“That’s five per cent of GDP, and that is extremely high. I would liken these reforms to someone with a hard medical condition who had to make tough choices. Let’s not forget that at some point in Nigeria, the debt service to revenue was 100 per cent; now, the good news is that we are around 50 per cent, and that is a big decline.
“The cost of reforms comes mainly from high inflation, and in the case of Nigeria specifically, food inflation is impacted by FX and the fact that lots of agricultural products are impacted by the price of petrol, etc. That means the impact of these reforms is being felt by the most vulnerable.
“It is very important that the government continues on the reforms on social protection but also accelerates the roll-out of these cash transfers. It is more important to finance them over the future. It will be very important to continue to encourage the authorities to scale up and accelerate these interventions, which are time-bound and targeted at those who are really impacted and done through a digital way to avoid any potential misuse in the future.”
Also speaking on inflation, the Nigeria Country Representative, International Monetary Fund, Dr Christian Ebeke, reiterated calls for coordination between the fiscal and monetary authorities.
He said, “It’s important that efforts to bring inflation down by the fiscal authorities are being done in the context of better coordination. For example, one of the key decisions that took place last year was the commitment by both the central bank and the fiscal authorities to strengthen coordination.
“We didn’t see Ways and Means accrue again as we have seen in the past year in Nigeria, and it was welcome. This is something that should bring inflation down by tightening financial conditions but also by reducing money in circulation.
“The other important thing for the fiscal authorities to do is to tackle any distribution consequences of the reforms that have been implemented. Naira reforms or the completion of the fuel subsidy removal. We know that these key reforms in Nigeria will have redistributive consequences on the most vulnerable, and they may not be able to cope.
“Fiscal authorities have a key role to play because the transmission lag of fiscal policies is shorter compared to monetary policies. So, issues of social protection are very important. That is how fiscal policies can complement what the monetary authorities are doing,” Ebeke said.
On the social protection programmes of the government, Ebeke called for initiatives with a human face.
“On social protection, there is a cash transfer programme that is being strengthened. It is all about how we can think about fiscal consolidation with a social agenda or human face,” he said.
On the Ways and Means, Ebeke averred, “We should not have been in that position to start with. Cleaning up this big problem is taking time, and the persistent effect of the Ways and Means on inflation and, in general terms, on financial conditions. The CBN is trying to mop up liquidity. Just the practice of having deficit monetisation, as has been practiced in Nigeria for years, is now over.
“Again, big congratulations to both the CBN and the fiscal authorities for curbing that. Now, when it comes to the securitisation of these, central banks around the world have a memorandum of understanding with the fiscal authorities on this type of liability management. The securitisation has the benefit of spreading out the maturities. Also, this has been done transparently, so this is good. With Central Bank independence and fiscal prudence, you should not be seeing this type of pressure on the macroeconomy, including the effect on the parallel exchange rate and inflation.”
