Mounting subsidy payment will hamper Nigeria's economic growth, IMF warns
IMF building

The International Monetary Fund (IMF), has thrown its weight behind the decision of the Central Bank of Nigeria (CBN) to tighten monetary policy, just as it predicted 17 per cent inflation figures for Nigeria in the short-term.

The Bretton Woods institution also urged that monetary policy committee in Nigeria and globally harmonise their policies for inclusive growth of their individual economies.

Also, the Fund in its latest World Economic Outlook (WEO), compared to its July WEO, downgraded Nigeria’s growth prospects from 3.4 per cent to 3.2 per cent for 2022 and further downgraded 2023 forecast from 3.2 per cent to 3.0 per cent.

The fund also noted that to cushion the elevated hike in food prices globally, it has introduced a food short window, which would allow a number of countries to access emergency financing to deal precisely with elevated food prices.

Speaking at the WEO briefing in response to Daily Independent question on Nigeria’s Central bank’s conventional and unconventional tools it is deploying at fighting against inflation, Chief Economist and Director Research Department IMF, Pierre-Olivier Gourinchas said: “Our advice, in general, is that central banks should first start with the traditional instruments of monetary policy and as you want to think about non-conventional instruments then you should think about what is the friction that is preventing the conventional monetary policy from working it will require a country or a central bank to deploy alternative ways of charting a course for monetary policy.”

On his part, the Divisional Chief Research Department, Daniel Leigh, added: “So, for Nigeria, in particular, we forecast inflation at about 19 per cent this year, but then some moderation next year down to 17 per cent, and part of that does reflect the monetary policy actions which is the 4 per cent point increase in Nigeria’s Central Bank as well as the decline that we expect in oil and food prices globally.”

Furthermore, on low-income countries who have been affected by the rise in food prices, Gourinchas added: “A lot of hardship, especially for low-income households for whom the food and energy component but their basket is very important. Of late, food prices started to turn around and come down. There had been some positive developments, for instance, the Black Sea Green Deal that was implemented over the summer that allowed the exports of Ukraine wheat and some of the increases you’ve seen in the last few days reflect some uncertainty maybe about the continuation of the deal given the situation in Ukraine.”

“This is one of the risks that we highlight is that you could have a lot of uncertainty in food and energy markets related to the war.

“The fund has just opened its food short window, which allows a number of countries to access emergency financing to deal precisely with elevated food prices. And so, this has just started and, and a number of countries we expect a number of countries will be able to access funding through that new facility that is part of the emergency funding we have.”

In a separate briefing on Global Financial Stability Report, Director Monetary and Capital Markets Department, IMF, Tobias Adrian stressed the need for fiscal and monetary policies to work in hand towards reigning in inflation as well as inclusive and sustainable growth.

Adrian said: “Food prices and commodity prices have hit many sub-Saharan African countries very hard as most of the countries are importers of food, in particular, and this comes on top of the previous crisis, the COVID crisis is already in Sub-Saharan Africa and now we have this rise in commodity prices and of course, the tightening of global financial conditions that we already discussed. So many countries are already in debt distress or close to debt with high vulnerabilities. You know, addressing those debt issues is very high and that has triggered a tightening of monetary policy. There’s a variety of shades across countries, but is certainly also thought to contain inflationary pressures.”

“And then finally, I would say that protecting the most vulnerable is very important. As you know, in the WEO and in the fiscal monitor as well, we are flagging that extreme poverty has been increasing recently. So, targeted fiscal policies to help the most vulnerable is particularly important in some such countries. Now, having said that, of course, in an environment of high inflation, an overly expansionary stance or more expansionary stance, or fiscal policy is problematic for most countries, in general, we would love to see that fiscal policy is aligned with the objectives of the monetary policy stance,” he added.




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