Nigeria battles to halt spiraling currency crisis and rising food insecurity
Nigeria is grappling with a historic currency crisis and surging inflation, with the International Monetary Fund cautioning that nearly one in ten people are now grappling with food insecurity.
Inflation soared to a staggering 29.9% annually in January, primarily fueled by skyrocketing food prices, exacerbating a cost-of-living crisis in Africa's largest economy. Concurrently, the naira plummeted to an unprecedented low of about 1,600 against the U.S. dollar by late February.
President Bola Tinubu's administration, since assuming office in May 2023, swiftly initiated economic reforms, including the removal of fuel subsidies and currency controls. However, these reforms have unveiled underlying macroeconomic challenges previously suppressed by interventionist policies.
Despite economic growth reaching 2.8% in 2023, the IMF notes it falls short of supporting the country's rapid population growth. Addressing food insecurity, affecting 8% of Nigerians, is an immediate priority.
The IMF lauded Nigeria's endorsement of a targeted social protection system and recent government initiatives to enhance revenue collection and oil production. The Central Bank of Nigeria's decision to raise interest rates by 400 basis points to 22.75% has garnered cautious investor approval, leading to a slight naira appreciation.
"Improved oil production and anticipated better harvests in the latter part of the year bode well for 2024 GDP growth, projected at 3.2 percent, albeit high inflation, naira depreciation, and tightening policies will pose challenges," noted the Washington, D.C.-based institution in its report.
"With approximately 8 percent of Nigerians facing food insecurity, addressing this rising concern is an immediate policy priority."
However, the IMF commended Nigeria's endorsement of an "effective and well-targeted social protection system," along with government initiatives such as the distribution of grains, seeds, and fertilizers, and the promotion of dry-season farming.
Concerns persist regarding loose fiscal policies hindering inflation control efforts. The central bank's strategy for stabilizing the naira faces criticism, with fears of prolonged monetary tightening at the expense of growth.
Private sector momentum in Nigeria slowed in February, with the PMI dropping to 51.0 from 54.5 in January. While PMIs have remained positive, the full-year average declined from 53.9 in 2022 to 50.4 in 2023.
Soaring input and output costs dampen private sector confidence, hindering economic activity and growth.
Oxford Economics projects a 2.8% GDP growth in 2024, with improvements in the hydrocarbon sector offsetting non-oil weaknesses. Upside risks include domestic industry recovery and easing inflation, while downside risks stem from persistent price stickiness, exchange rate fluctuations, oil price volatility, and domestic insecurity.
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