The World Bank says there is a possibility the monetary policy tightening by the Central Bank of Nigeria (CBN) would not rein inflation.
In its global economic prospects report released on
Wednesday, the Bretton Woods institution said one of the risks of Nigeria’s
economic growth is the failure of tightening policies on inflation.
The tightening of the monetary policy rate (MPR) is the increase
of interest rate to control soaring inflation.
Since the resumption of the monetary policy committee (MPC) meeting this year, interest rates have increased from 22.75 percent in February to 26.25 percent in May – a total increase of 750 basis points.
“Risks to Nigeria’s
growth outlook are substantial, including the possibility that the tightening
of monetary policy stops short of reining in inflation,” the World Bank said.
The report also predicted Nigeria’s economic growth rate
outlook for the rest of 2024 and 2025 to remain the same.
“Growth in Nigeria is projected to pick up to 3.3 percent
this year and 3.5 percent in 2025,” the World Bank said.
“After the
macroeconomic reforms’ initial shock, economic conditions are expected to
gradually improve, resulting in sustained, but still-modest growth in the
non-oil economy.
“In addition, the oil sector is expected to stabilize as
production somewhat recovers.”
Also, the World Bank said public debt in sub-Saharan Africa
is expected to remain elevated over the forecast period if global interest
rates remain high for longer than assumed in the baseline forecast.
“With public debt-service costs having surged in many SSA
economies since the pandemic, the need for debt reduction in highly indebted
countries has become substantial,” the report said.
“Many SSA economies
tightened their monetary policy to address rising inflation, resulting in
increased financing costs. Public debt is expected to remain elevated over the
forecast period.
“If global interest rates remain high for longer than
assumed in the baseline forecast, debt-service costs for SSA economies are
likely to rise even further.
“When coupled with limited access to external financing
favourable interest rates, rising financing costs could markedly increase the
risks of government debt distress—especially because debt restructuring in
several SSA countries has been hampered by coordination problems among a
diverse group of creditors.”
The World Bank also said growth is projected to pick up this
year in sub-Saharan Africa, albeit less robustly than previously forecast.
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