Nigeria’s inflation rate soared to a 17-year high of 24.1% in July 2023, attributed to surging food prices and the temporary impact of removing fuel subsidies. Despite a cumulative 725 basis points hike in the monetary policy rate since May 2022, the bank highlighted that inflation remains unchecked due to obstructed transmission channels and direct credit allocation by the central bank, coupled with the continuous monetization of the fiscal deficit.
The report also highlighted the country’s escalating federal fiscal deficit, which surged by 63% between January and May 2023 compared to the same period in 2022. This surge was attributed to mounting interest payments, increased capital spending preceding elections, and the persistent high cost of the fuel subsidy.
The World Bank underscored the potential implications of this fiscal scenario, foreseeing a spike in public debt to 45% of GDP and projecting that debt service would surpass total revenues in 2023.
Despite a current account balance surplus in Q1 2023, driven by reduced imports and income outflows, it was noted that these surpluses have been insufficient to bolster foreign reserves, primarily due to a contraction in oil export FX flows to the central bank.
Looking ahead, the World Bank emphasized that sustained economic growth in Nigeria hinges upon the effective implementation of macro-fiscal and inclusive structural reforms, which it anticipates will elevate economic growth to an average of 3.4% in 2023-2025. It also foresaw a moderation in inflation by 2024.
The institution projected that the proportion of Nigerians living below the international poverty line is expected to peak at 38.8% in 2024 before gradually receding, anticipating targeted interventions such as cash transfers to alleviate the immediate impact on the poor and vulnerable, thus mitigating the risk of intergenerational poverty traps.
In an earlier disclosure in June, the World Bank estimated that inflation had already propelled around four million people into poverty between January and May 2023. By October 2023, inflation had further risen to 27.33%.
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