IMF warns Nigeria of potential 44% inflation rate

The International Monetary Fund (IMF) has warned Nigeria of a potential 44% inflation rate due to the worsening value of the naira.

The IMF issuing the warning said inflation in Nigeria will rise if the Federal Government fails to quickly implement substantial monetary policies.

The IMF, in its report, further called on the President Bola Ahmed Tinubu-led administration to counteract currency devaluation and the impact of possible climate shocks on agriculture and food prices.

“An adverse scenario of an inflation-depreciation spiral combined with a climate shock would increase risks to Nigeria’s capacity to repay the Fund,” the IMF said in its latest evaluation report on the country’s post-financing status.

“Staff presented a downside scenario to the authorities with the following features: Monetary policy is tightened insufficiently to bring down inflation below 20%, and pressures on the naira persist.

“In addition, Nigeria is hit by another adverse climate shock in early 2024 (following severe flooding in late 2022) that exacerbates the current weakness in agriculture and leads to a decline in output and a surge in food prices.”

The IMF said given the absence of local production and the recent liberalization of commodity imports, the exchange rate would likely depreciate further by an estimated 35% in 2024.

It added that this could contribute to a further sharp rise in inflation, peaking at 44%, before monetary policy is eventually tightened sharply.

As such, the IMF has hinted at a disturbing picture of the nation’s economic prospects while urging the Central Bank of Nigeria (CBN) to take substantial measures to tighten its monetary policy.

Meanwhile, Nigeria’s headline inflation rate climbed to 29.9 percent in January, according to the latest figures published by the National Bureau of Statistics last Thursday.

The NBS inflation report is based on the Consumer Price Index (CPI), which measures the average change in prices paid by consumers over a period of time for a basket of goods and services.

According to the report, in January 2024, Nigeria’s headline inflation rate increased to 29.90% relative to the December 2023 headline inflation rate, which was 28.92%.

“Looking at the movement, the January 2024 headline inflation rate showed an increase of 0.98% points when compared to the December 2023 headline inflation rate,” NBS’ report read.