IMF urges Nigeria to raise interest rate amid high inflation

By Abubakar Yunus

The International Monetary Fund (IMF) has advised the Central Bank of Nigeria (CBN) to further hike its Monetary Policy Rate (MPR) when it meets next week, to curb the soaring inflation in the country.
The IMF’s Director of Communications, Ms. Julie Kozack, made the recommendation in a press briefing in Washington DC, USA, on Sunday. She said the CBN’s liquidity mop-up measures were already having some positive effects, but more needed to be done to bring down the inflation rate, which hit 27.1% in October.
Ms. Kozack also commended President Bola Tinubu for implementing two “bold and important” reforms since he assumed office in May. She said the removal of fuel subsidies and the unification of the official exchange rate were crucial steps to address the fiscal and external imbalances in Nigeria.
“On Nigeria, President Tinubu has implemented two bold and important reforms shortly after taking office. The first is on fuel subsidies.
Nigeria’s fuel subsidies were costly, especially for the budget, and not well targeted to provide relief for vulnerable households, and so this was rectified. And the second was unifying of the official exchange rate and that removed long standing distortions of the multiple exchange rate system,” she said.
She added that the IMF supported the CBN’s efforts to tackle the high inflation problem, which was eroding the purchasing power of Nigerians and undermining economic growth.
“You asked a specific question on inflation. Inflation in Nigeria is running very high. It reached over 27% in October, that is the year-on-year number. The Central bank, under its new leadership, has started to withdraw excess liquidity that was in the system and contributing to high inflation.
The next Monetary Policy Committee meeting should further raise policy interest rate. So, the Central bank is taking action to try to address the high inflation problem,” she said.
Ms. Kozack also stressed the need for Nigeria to increase its revenue base, which was currently one of the lowest in the world at 9 percent of GDP. She said this was essential to create fiscal space for social and development spending, to protect the poor and meet the country’s development needs.

“As we mentioned in our Article IV Consultation, which was held in February of 2023, raising revenue from the very current low revenue to GDP ratio of 9% is essential to create fiscal space for social and development spending. 9% of GDP is a very low revenue to GDP ratio, and it is really not high enough to be able to support strong social safety nets, and development spending, to help protect vulnerable households and also to meet Nigeria’s development needs,” she said.

She noted that the 2024 budget, which was recently submitted to the National Assembly, aimed to reduce the fiscal deficit while also creating space for these priority spendings, both on the social side and on the development side.