World Bank urges CBN to maintain focus on inflation control

Onome Amuge

The World Bank Group has stressed the importance of maintaining the current policies implemented by the Central Bank of Nigeria (CBN) in a bid to combat inflationary pressures in the country.

Sameer Matta, the senior economist for Nigeria, World Bank Group, made the assertion at the launch of the 2025 Macroeconomic Outlook of the Nigerian Economic Summit Group (NESG) themed ‘Stabilisation in Transition: Rethinking Reform Strategies For 2025 and Beyond.’

In a bid to curb inflationary pressures, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) introduced a series of interest rate hikes in 2024, adding up to a cumulative increase of 875 basis points.

Matta, during a panel session at the NESG event, stated:

“I think what is critical in terms of inflation is to stay the course. I think that the central bank needs to continue to be focused on making sure that inflation is under control. Obviously, part of it is related to the supply side. What can be done to improve the yield on the agriculture side? What can be done to improve the link between the rural areas and the urban areas?

“There is the question of what can be done on the trade policy side. One would be to increase production locally, but that would take time. One of the things that can be done on the trade policy side is to think through which sectors could be targeted to allow some tariffs to be adjusted.”

According to the World Bank senior economist, the cost of not doing reform was two percent of GDP for fuel subsidy and three percent of GDP for FX subsidy.

He explained further: “That’s five per cent of GDP, and that is extremely high. I would liken these reforms to someone with a hard medical condition who had to make tough choices. Let’s not forget that at some point in Nigeria, the debt service to revenue was 100 percent; now, the good news is that we are around 50 per cent, and that is a big decline.

“The cost of reforms comes mainly from high inflation, and in the case of Nigeria specifically, food inflation is impacted by FX and the fact that lots of agricultural products are impacted by the price of petrol, etc. That means the impact of these reforms is being felt by the most vulnerable.”

Matta underscored the importance of maintaining social protection reforms and accelerating the roll-out of cash transfer programmes in Nigeria. He emphasised that it is not just essential to finance these programmes in the present, but also to ensure their sustainability over the long term.

Matta also stressed the relevance of supporting the Nigerian government in its efforts to expand and accelerate digital cash transfer programmes that aim to assist those most severely affected by the current economic challenges.

Christian Ebeke, the International Monetary Fund’s (IMF) representative in Nigeria, also weighed in on inflationary pressures during the NESG event.

Ebeke urged the government to ensure that fiscal and monetary policies are coordinated to address inflation effectively.

“It’s important that efforts to bring inflation down by the fiscal authorities are being done in the context of better coordination. For example, one of the key decisions that took place last year was the commitment by both the central bank and the fiscal authorities to strengthen coordination.

“We didn’t see Ways and Means accrue again as we have seen in the past year in Nigeria, and it was welcome. This is something that should bring inflation down by tightening financial conditions but also by reducing money in circulation,” he said.

The other important thing for the fiscal authorities to do, according to Ebeke, is to tackle any distribution consequences of the reforms that have been implemented, including Naira reforms or the completion of the fuel subsidy removal.

“Fiscal authorities have a key role to play because the transmission lag of fiscal policies is shorter compared to monetary policies. So, issues of social protection are very important. That is how fiscal policies can complement what the monetary authorities are doing,” the IMF representative said.

Ebeke also stressed the importance of adopting a human-centered approach in implementing social protection programmes, particularly in light of fiscal consolidation efforts.

He further acknowledged the role of the CBN in maintaining macroeconomic stability, arguing that the bank’s financial autonomy and fiscal responsibility should help prevent macroeconomic challenges, such as exchange rate volatility and inflation.