NECA: CBN’s Monetary Tightening Spurring Naira Appreciation

•IMF raises Nigeria’s growth projection for 2024 to 3.3%, says country on path to rein in inflation

•Forecasts CPI to decrease to 23% in 2025, 18% by 2026 due to reforms 

•Edun advocates more concessional financing

Nume Ekeghe and Dike Onwuamaeze

Director General of Nigeria Employers Consultative Association (NECA), Mr. Adewale-Smatt Oyerinde, has said the monetary tightening measures of the Central Bank of Nigeria (CBN) have led to the recent appreciation of the naira exchange rate against the United States dollar as well as deceleration in the rate and pace of inflation.

Oyerinde’s assessment came as the International Monetary Fund (IMF) yesterday raised Nigeria’s 2024 economic growth forecast from the three per cent it had previously estimated, to 3.3 per cent. The Washington-based institution, however, revised downwards the country’s 2025 growth projection from 3.1 per cent to three per cent.

The fund also stated that CBN, through its heightened increase in the monetary policy rate, was on the path to rein inflation, as it projected inflation to decline to 23 per cent next year and then 18 per cent in 2026.

 Oyerinde, in a statement titled, “Nigeria’s Inflation Dynamics Amid Currency Appreciation: Need for More Supplementary Measures,” observed, “While the tightening measures of the CBN have led to the recent appreciation of the naira, there is, noticeably a decelerating increase in the recent inflation figure.”

He added “that with time and the introduction of supplementary measures from the fiscal authority, addressing supply chain fundamentals, the inflation figure would begin to decline”.

He stated that other factors exerted stronger upward pressure on prices despite currency appreciation that would have typically dampened inflation by reducing import costs.

According to Oyerinde, “Supply chain disruptions, logistical challenges, and rising production costs have continued to drive up prices across various sectors, amplifying inflationary expectations.

“However, there is hope that once the Dangote refinery commences production and distribution of petroleum products, transportation costs and other production expenses will significantly reduce.”

Oyerinde, advised policymakers to adopt a holistic approach to address inflationary pressures and promote economic stability.

He said this would include, “Implementing prudent monetary and fiscal policies to address supply-side constraints, enhance productivity, and stimulate investment in critical sectors, such as agriculture and infrastructure.

“Additionally, fostering conducive business environment, encouraging innovation, and promoting competition can help mitigate inflationary pressures in the long term.”

He also emphasised the importance of monitoring inflation dynamics closely, assessing the impact of currency movements, and advocating evidence-based policies to promote economic resilience and inclusive growth.

The director general called for government intervention at all levels to address factors disrupting food supply, support domestic firms to boost local production, and synergise monetary and fiscal policies effectively to combat inflation.

He explained, “In March 2024, the inflation rate surged to 33.01 per cent, marking a notable uptick from 31.7 per cent recorded in February.

“This indicates a 1.31 percentage point increase over the period, reflecting the growing inflationary pressures in the economy.

“Moreover, when compared to March 2023, the inflation rate rose by 10.97 percentage points, further underscoring the magnitude of the inflationary challenge.

“Of particular concern is the spike in food inflation, which climbed to 40.01 per cent in March 2024 from 37.72 per cent in February.

“Food inflation accounted for 17.2 per cent of the total inflation rate for the month, highlighting the significant impact of rising food prices on overall inflationary trends.

“Additionally, the share of housing, water, electricity, gas, and other fuels contributed 5.56 per cent to the total inflation rate, further adding to inflationary pressures across essential sectors.”

IMF Upgrades Nigeria’s Growth Projections for 2024 to 3.3%

IMF raised Nigeria’s 2024 economic growth forecast from the three per cent it had previously estimated to 3.3 per cent.

IMF made the projection in its latest World Economic Outlook (WEO) released yesterday, at the ongoing hybrid spring meetings in collaboration with the World Bank, in Washington DC.

In a separate press briefing for G-24 finance ministers, Minister of Finance and Coordinating Minister of the Economy, Mr. Olawale Edun, called for more concessional debt, saying such support is vital for Nigeria in alleviating exchange rate pressures.

The IMF report titled, “Steady but Slow: Resilience amid Dive,” also stated that in sub-Saharan Africa (SSA), it was anticipated that growth would increase from approximately 3.4 percent in 2023, to 3.8 per cent in 2024 and further to four per cent in 2025.

That optimistic outlook stemmed from the gradual alleviation of adverse impacts from previous weather disturbances and the gradual resolution of supply challenges.

 The growth forecast for SSA in 2024 remained consistent with the January 2024 WEO Update.

On Nigeria and SSA’s growth prospects, IMF stated, “In sub-Saharan Africa, growth is projected to rise from an estimated 3.4 percent in 2023 to 3.8 percent in 2024 and four percent in 2025, as the negative effects of earlier weather shocks subside and supply issues gradually improve.”

The forecast was unchanged for 2024, from the January 2024 WEO Update, as a “downward revision to Angola owing to a contraction in the oil sector is broadly offset by an upward revision to Nigeria.”

Equally speaking on Nigeria at the WEO media briefing, Division Chief, Research Department, IMF, Daniel Leigh, noted that Nigeria’s economic growth was showing positive signs, with a rise from 2.9 per cent last year to 3.3 per cent this year, driven by the recovering oil sector and improved agriculture.

However, Leigh stated that inflation had increased due to various factors, including reforms and exchange rate fluctuations. He said reforms were prompting a revision of the inflation projection for this year to 26 per cent.

Nevertheless, Leigh foresaw that with tight monetary policies and significant interest rate increases, inflation was expected to decline to 23 per cent next year, and further to 18 per cent by 2026, indicating a favourable trajectory for the economy.

 Leigh said, “Growth on Nigeria is steady but actually rising this year from 2.9 per cent last year to 3.3 per cent this year. We have seen an expansion from the recovering oil sector with a better security situation and also improved agriculture benefiting from the better weather conditions and the introduction of dry season farming.

“So there is a broad-based increase also in the financial sector and the IT sector. Inflation has increased, part of this reflects the reforms and the exchange rate and it has passed from imports to other goods. This explains also why we revised our inflation projection for this year to 26 per cent.

“But with the tight monetary policies and the interest rate policy increase and significant interest rate in February and March, we see inflation declining to 23 per cent next year and then 18 per cent in 2026. So, it is in the right direction definitely.”

Edun, who was represented by Director-General, Budget Office of the Federation, Ben Akabueze, at the G-24 Ministers press briefing, stated that the Nigerian economy was steering in the right direction with the recent policies being undertaken by the present government.

Responding to a question on Nigeria’s debt stance and how to manage it sustainably, he said, “For Nigeria, we faced fiscal challenges but most significantly by getting debt sustainable and at the same time increasing fiscal space for our ever-increasing burden of public expenditure, especially with sustained high population growth.

“So, the most important support that Nigeria requires at this time is investment and increased trade. While Official Development Assistance (ODA) is helpful at the end of the day, that’s not what’s going to sustainably address the scale of Nigeria’s problems.

“There is a lot of investment opportunities, especially in areas like infrastructure. At the same time, of course, concessionary debt and support still remain important for the country, especially foreign currency-denominated for one it helps also with addressing the foreign currency supply situation that puts pressure on the exchange rate.”

Edun added, “You can see inflation is high and is being tackled, we see inflation beginning to basically peak and we can see a reversing trend towards the second half of this year.

“The exchange rate is stabilised now, we have seen basically the parallel and the foreign exchange market rates merge. I think that all of these are inspiring greater confidence in investors, whether it be portfolio investors, foreign direct investors, and even domestic investors as well.”