Inflation Will Escalate if CBN Continues to Fund Government Deficits—IMF
By Aduragbemi Omiyale
The Central Bank of Nigeria (CBN) has been advised to make efforts to suspend or reduce its funding of the government’s fiscal deficits if it wants the red-hot inflation to cool down.
According to the National Bureau of Statistics (NBS), the country’s inflation moved up to 22.41 per cent in May 2023 from 22.22 per cent in April 2023.
The inflation data for June 2023 is expected to be released by the agency on Monday, July 17, and some analysts are projecting that it would near or surpass 23.00 per cent due to the effect of the fuel subsidy removal and the liberalisation of the foreign exchange (FX) rates, which pushed prices of goods and services higher last month.
At his inaugural speech on Monday, May 29, 2023, President Bola Tinubu declared an end to the petrol subsidy regime, pushing the pump price to N500 per litre from N185 per litre.
Speaking at a press briefing on Thursday, the Director of the IMF Communication Department, Ms Julie Kozack, said her organisation sees inflation further going up in Nigeria in the coming months.
“As to inflation, we do expect inflation to increase in the coming months. And as a result, or because of that, fiscal and monetary policy tightening, including reducing central bank financing of government fiscal deficits, are needed to prevent a further escalation of inflation,” she said.
The last administration of Mr Muhammadu Buhari borrowed several trillions of Naira from the CBN under the leadership of Mr Godwin Emefiele to finance budget deficits.
After several criticisms, his government approached the parliament to convert the CBN loans, also known as Ways and Means, to government securities or bonds, with a maturity of about 40 years.
The ninth National Assembly under Senate President Ahmad Lawan and Speaker Femi Gbajabiamila approved the request before the end of the tenure of Mr Buhari on May 29.
While reacting to the recent policies of the present administration, Ms Kozack said, “Increasing well-targeted social spending will be critical to mitigating the impact of the removal of fuel subsidies on the most vulnerable.”
“Strengthening revenue mobilisation through tax administration reforms is also essential to create fiscal space, reduce vulnerabilities, and put public debt on a sound footing,” she added.
However, she said the IMF will continue to work with the local authorities on ways to support the country, which is the largest economy in Africa.
“So, in Nigeria, the most recent Article IV consultation was concluded on February 6, 2023. IMF staff has been engaging closely with the transition team, elaborating on the IMF’s policy recommendations, and providing policy advice if requested.
“The IMF welcomes the recent removal of fuel subsidies and the unification of the exchange rate regime,” the global lender’s spokesperson said.