The World Bank has cautioned the Central Bank of Nigeria (CBN) against monetising the fiscal deficit, direct lending interventions, untargeted subsidy programmes, and foreign exchange controls.
The warning was contained in its recently released Africa’s Pulse report.
Africa’s Pulse is a bi-annual publication of the Office of the Chief Economist in the World Bank Africa Region, which analyses the continent’s short-term economic prospects, current development challenges, and a special development topic.
The 2023 edition of the report attributed the inflationary challenges to several factors, including “a global demand slowdown, eased supply chain disruptions, lower commodity prices, and stricter monetary policies.”
Despite a projected decrease to 7.3 per cent in 2023 from 9.3 per cent in 2022, 18 countries are still contending with double-digit inflation.
The Central Banks of Ethiopia, and Uganda were also advised to refrain from unconventional measures that might undermine their monetary policies.
The World Bank noted the critical challenge of inflation faced by monetary authorities in the region, particularly in countries struggling with “underdeveloped financial systems, a substantial informal sector, and a lack of coordination between monetary and fiscal policies.”
It also called attention to the potential consequences, stating, if monetary and fiscal actions are not adequately coordinated to bring down inflation, the risk of de-anchoring inflation expectations would fuel further inflation, accelerate interest rate increases, and exacerbate the deceleration of economic activity.
The World Bank further underscored the persistent inflationary challenges faced by most regional countries.
The report highlighted the impact on households, particularly the poor, who allocate a significant portion of their earnings to food, due to rising food and fuel costs and weakened domestic currencies.
On fiscal matters, the report expressed concern over the slow progress of fiscal consolidation efforts in some countries. In 2023, fiscal deficits remain higher than pre-pandemic levels for nearly two-thirds of the region’s nations.
It emphasised the urgency of addressing these issues, pointing out the need for “domestic resource mobilization and efficient spending” to mitigate fiscal and debt sustainability risks, curb inflation, and create room for development expenditure.
The World Bank further acknowledged the efforts of some countries, including Kenya and Ghana, in implementing revenue reforms, and Angola and Nigeria in subsidy reforms, signifying the region’s commitment to fiscal consolidation.