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The International Monetary Fund (IMF) has expressed its backing for the Central Bank of Nigeria’s (CBN) move to increase the benchmark borrowing rates by 400 basis points, elevating it to 22.75% from 18.75%. This decision was made by the Monetary Policy Committee (MPC) during its February meeting, citing concerns about rising inflation, exchange rate pressures, and the need to reverse the trend.
In a statement following the conclusion of the IMF staff visit to Nigeria, the fund applauded the MPC’s decision, stating that it would assist in containing inflation, which had reached 29.9% year-on-year in January 2024, and alleviate pressures on the naira.
The IMF team, led by Axel Schimmelpfennig, the IMF mission chief for Nigeria, visited Lagos and Abuja from February 12 to 23, 2024, for discussions related to the 2024 Article IV Consultations with Nigeria. During this period, the team engaged with various stakeholders, including the Minister of Finance, Wale Edun, CBN Governor Olayemi Cardoso, senior government and central bank officials, as well as representatives from the Ministries of Agriculture and Environment, sub-nationals, the private sector, and civil society.
Schimmelpfennig acknowledged the challenging economic outlook for Nigeria, highlighting that GDP growth reached 2.8% in 2023, slightly below population growth dynamics. He mentioned that improved oil production and expectations of a better harvest in the second half of the year are positive factors for 2024 GDP growth, projected to reach 3.2%. However, challenges such as high inflation, naira weakness, and policy tightening could act as headwinds.
The IMF chief emphasized the need for addressing rising food insecurity as an immediate policy priority, considering approximately eight percent of Nigerians are food insecure. He commended the approval of an effective and well-targeted social protection system and the government’s initiatives, such as releasing grains, seeds, and fertilizers, along with the introduction of dry-season farming.
Regarding revenue mobilization, Schimmelpfennig acknowledged recent improvements but noted that Nigeria’s low revenue collection constrains the government’s ability to respond to shocks and promote long-term development. The IMF suggested that addressing costly fuel and electricity subsidies should follow the full implementation of the targeted social safety net program, ensuring protection for low-income households.
The IMF revised its economic growth forecast for Nigeria to three percent in 2024, slightly down from the 3.1% projected in October 2023.
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