The International Monetary Fund (IMF) has urged the Central Bank Nigeria (CBN) to continue to tighten monetary policy rates to rein in inflation.

The IMF Director of Research Department, Pierre-Oliver Gourinchas said this while releasing the World Economic Outlook report at the ongoing IMF/World Bank Spring meetings in Washington DC.

The fund in its World Economic Outlook (WEO) ‘A Rocky Recovery’ also upgraded Nigeria’s growth prospects for 2024 to 3 per cent, an upgrade of 0.1 per cent from its last WEO released in January.

Further on Nigeria’s growth prospects, it maintains that the prospects are stable and retained its predictions for 2023 at 3.2 per cent.

Speaking on Nigeria, Division Chief, Research Department, Daniel Leigh said: “For Nigeria, our forecast is one of the most stable ones for this year. We have a slight increase, we have 3.3% in 2022 that’s an upward revision, and for 2023 about the same 3.2% and 3% in 2024.  So, this is an economy with very high inflation as well and this is why we have a forecast of about 20 per cent for 2023.

“And one of our main recommendations is to tighten the monetary policy to ensure that this inflation comes down towards the more target levels.”

Nigeria’s inflation rose in January and February from 21.82 per cent to 21.91 despite the hike in the Central Bank’s Monetary Policy Rate from 16.5 per cent to 17.5 per cent in January 2023.

This made the CBN effect a second increase in the MPR to 18 per cent in the month of March this year.

Speaking on Sub-Saharan Africa,  Pierre-Olivier Gourinchas noted that inflation for the region is still high but he foresees a gradual decline for the region.

He said: “This region is suffering from a strong funding squeeze. We already discussed some of the countries that are facing very innovative spreads, and a lot of them are already in the region. A lot of the challenges come from external factors that vary from the surge in energy prices and food prices as a consequence of the Russian invasion of Ukraine and the tension in energy markets is affecting the region.

“So we have a slow growth for the region overall to about 3.6 per cent in 2023 and 3.9 per cent last year.”

Speaking on the global inflationary pressures while presenting the Global Financial Stability Report, the IMF Director, Monetary and Capital Markets Department, Tobias Adrian said that the emergence of stress in financial markets is complicating the task of central banks.

He said, “The availability of tools aimed at addressing financial stability risks should help central banks separate monetary policy objectives from financial stability goals, allowing them to continue to tighten policy to address inflationary pressures.

“If financial strains intensify significantly and threaten the health of the financial system amid high inflation, trade-offs between inflation and financial stability objectives may emerge.

“Clear communication about central banks’ objectives and policy functions will be crucial to avoid unnecessary uncertainty. Policymakers should act swiftly to prevent any systemic event that may adversely affect market confidence in the resilience of the global financial system.

“Should policymakers need to adjust the stance of monetary policy to support financial stability, they should clearly communicate their continued resolve to bring inflation back to target as soon as possible once financial stress lessens.”

Rising debts limit countries’ ability to respond to challenges

The IMF also said the rising debt levels among countries are currently limiting their ability to respond to new economic challenges.

The federal government spent 41% of the revenue generated in 2022 to service its over N46trn debt. Recently, Moody’s Investors, a US-based credit rating agency downgraded Nigeria’s sovereign debt from B3 to Caa1 over weak oil revenues.

Nigeria’s total public debt as of December 31, 2022, consisting of the domestic and external debt stocks of the federal government and the 36 state governments and the Federal Capital Territory rose to N46.25trn or $103.11bn.

The total public debt to Gross Domestic Product ratio for December 31, 2022, was 23.20 per cent and indicates a slight increase from the figure for December 31, 2022, at 22.47 per cent

The ratio of 23.20% is still within the 40% limit self-imposed by Nigeria, the 55 per cent limit recommended by the World Bank/IMF and the 70% limit recommended by the Economic Community of West African States (ECOWAS).

Gourinchas, while speaking on the World Economic Outlook report, painted a bleak picture of the global economy, estimating that growth will slow more than expected this year.

The IMF said the “anaemic outlook” reflects the higher interest rates needed to bring down persistent inflation, the deterioration of financial conditions amid banking turmoil, the war in Ukraine and growing geo-economic fragmentation.

The IMF director said that the global economy would witness a decline in global growth rate from 3.4% in 2022 to 2.8% in 2023.

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