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The World Bank has issued a warning to the Central Banks of Nigeria, Ethiopia, and Uganda, advising them to refrain from adopting unconventional measures that could potentially undermine their monetary policies.
The World Bank, headquartered in Washington, D.C., specifically highlighted a range of measures that should be avoided, including “monetizing the fiscal deficit, direct lending interventions, untargeted subsidy programs, and foreign exchange controls.”
The lender stressed that one of the critical challenges faced by monetary authorities in the region is inflation, particularly in countries dealing with issues such as “underdeveloped financial systems, a substantial informal sector, and a lack of coordination between monetary and fiscal policies.”
The World Bank emphasized the potential consequences of inadequate coordination between monetary and fiscal policies, stating that it could lead to a de-anchoring of inflation expectations, resulting in further inflation, increased interest rates, and a slowdown in economic activity.
In its Africa’s Pulse report, the World Bank highlighted the persistent inflationary challenges experienced by many countries in the region. This bi-annual publication assesses the short-term economic prospects, current development challenges, and special topics related to the African continent.
The 2023 edition of the report attributed inflationary challenges to factors such as “a global demand slowdown, eased supply chain disruptions, lower commodity prices, and stricter monetary policies.” Despite a projected decrease in inflation for 2023 compared to 2022, 18 countries are still grappling with double-digit inflation.
The report also underscored the impact on households, especially those with lower incomes, who allocate a significant portion of their earnings to food due to rising food and fuel costs and weakening domestic currencies.
Regarding fiscal matters, the report expressed concern about the slow progress of fiscal consolidation efforts in some countries. In 2023, fiscal deficits remain higher than pre-pandemic levels for nearly two-thirds of the region’s nations.
The World Bank stressed the urgency of addressing these issues, emphasizing the need for “domestic resource mobilization and efficient spending” to mitigate fiscal and debt sustainability risks, curb inflation, and create room for development expenditure.
The report acknowledged the efforts of certain countries, such as Kenya and Ghana, in implementing revenue reforms, as well as Angola and Nigeria in subsidy reforms, highlighting the region’s commitment to fiscal consolidation. Additionally, the adoption of digital tools for tax administration and compliance has become a recent trend in the region.
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