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IMF says inflation rate in Nigeria could reach 44% due to worsening value of Naira

The IMF predicts that the inflation rate in Nigeria could reach as high as 44% due to the worsening value of the naira.

In its latest evaluation report on Nigeria’s post-financing status, the International Monetary Fund (IMF) has depicted a concerning outlook for the nation’s economic prospects.

The IMF cautions that Nigeria may experience a sharp increase in inflation to an unparalleled 44% if the Central Bank of Nigeria (CBN) does not take substantial measures to tighten its monetary policy.

In a scenario where the naira remains under significant strain and faces added pressure, along with the possible effects of a climate shock in early 2024, a concerning inflation rate is anticipated.

The report highlights a worrying chain of events where a lack of sufficient monetary tightening, ongoing pressure on the naira, and unfavorable weather conditions may significantly disrupt Nigeria’s economic stability. The IMF predicts a potential 35% devaluation of the naira in 2024, which could worsen inflationary challenges even more.

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“An adverse scenario of an inflation-depreciation spiral combined with a climate shock would increase risks to Nigeria’s capacity to repay the Fund. Staff presented a downside scenario to the authorities with the following features: 

“Monetary policy is tightened insufficiently to bring down inflation below 20% and pressures on the naira persist. In addition, Nigeria is hit by another adverse climate shock in early 2024 (following severe flooding in late 2022) that exacerbates the current weakness in agriculture and leads to a decline in output and a surge in food prices. 

“Given the absence of local production and the recent liberalization of commodity imports, the exchange rate would likely depreciate further—by an estimated 35% in 2024—and contribute to a further sharp rise in inflation, peaking at 44%, before monetary policy is eventually tightened sharply.”

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