Despite economic growth, inflation remains high in Nigeria — IMF

The International Monetary Fund (IMF) has said that despite the recovery of Nigeria’s economy that resulted in a 3.6 per cent year-on-year Gross Domestic Product (GDP) growth, inflation is still high in the country.

The IMF said this after the completion of a series of meetings between its staff led by Ms Jesmin Rahman and the Nigerian authorities between June 6 and 10, 2022, to discuss recent economic and financial developments, and the economic outlook for the country.

In a statement issued in Washington on Wednesday, June 15, IMF noted that, “Economic recovery continues to gain strength on the back of services and agriculture with GDP growth reaching 3.6 per cent (y/y) in Q1 2022. Latest data shows economic growth broadening to all sectors except oil, where production remains weak reflecting continued security and technical challenges.

“Inflation has reached 17.7 per cent (y/y) in May led by a renewed surge in food prices, exacerbated by the war in Ukraine, and raising food security concerns as over 40 per cent of the population live below the poverty line. To contain inflationary pressures, the Central Bank of Nigeria (CBN) has recently hiked its monetary policy rate by 150 basis points to 13 per cent.”

With respect to external sector, IMF stated that, “The current account deficit narrowed significantly in 2021 helped by import compression and higher net oil balance. However, the improving trade balance, which has continued so far in 2022, is having a limited impact on Foreign Exchange (FX) strains with the exchange rate premiums in the parallel market staying in the 35-40 per cent range since October 2021. Despite supportive oil prices, gross FX reserves fell to $38.6 billion at end-May 2022, having reached $41.5 billion in September 2021 boosted by SDR allocation and Eurobond issuance.”

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On the economic outlook, IMF said, “GDP growth is projected at 3.4 per cent (y/y) in 2022 while inflation is expected to remain elevated. The fiscal deficit of the Consolidated Government is expected to remain high at 6.1 per cent of GDP due in great measure to costly petrol subsidies and limited tax revenue collections. Downside risks to the near-term arise from further deterioration of security conditions, elections, low vaccination against Covid-19 and higher global interest rates.

“On the upside, steady private sector recovery and further broadening of growth, the start of operations at the Dangote refinery and decisive steps to mobilise revenues, in line with the Strategic Revenue Growth Initiative (SRGI) could spur inclusive growth and development.

“The IMF mission would like to thank the authorities and other counterparts for the open and thoughtful discussions and excellent cooperation.”