IMF predicts 22% inflation for Nigeria in 2022
The International Monetary Fund (IMF) has said it expects Nigeria’s inflation figure to reach between 18 and 22 percent in 2022 as a result of rising food and energy prices.
The Central Bank of Nigeria (CBN) raised interest rates by 150 basis points last week to ease inflationary pressure stemming from insecurity and the Russia-Ukraine crisis affecting the supply chain, with spending high polls expected ahead of Nigeria’s election year.
The IMF has also warned that with Nigeria’s public debt expected to reach 45 trillion naira this year, the country could spend all of its revenue on servicing debt over the next four years if the rising level of debt does not is not reduced.
This was stated by the IMF Representative for Nigeria, Mr. Ari Aisen, during the public launch of the Spring 2022 issue of the IMF’s Regional Economic Outlook for Sub-Saharan Africa, entitled “A new shock and little leeway”.
Aisen had noted that after conducting a macro-fiscal stress test, interest payments on debts could equate to Nigeria using 100% of its revenue for debt servicing by 2026 if it is not closely monitored. He also urged Nigeria in the short term to prioritize its debt, inflation, growth and foreign exchange management.
He therefore called for the aggressive implementation of the strategic revenue growth initiative initiated by the Ministry of Finance to effectively expand the tax net and mobilize funds for public spending for macro stability.
However, unlike the debt-to-service ratio of 76% as stated by the Director General of the Federation’s Budget Office, Ben Akabueze, the IMF representative noted that Nigeria’s debt-to-service ratio is currently stood at 89%, a move away from the government’s 50% target.
“I think the most critical aspect for Nigeria is that we have done a macro-fiscal stress test, and what you are seeing are interest payments as a share of revenue, and as you see in terms of the federal government’s benchmark in Nigeria, revenues – almost 100% – are expected to come from debt servicing by 2026.
“So the fiscal space or the amount of revenue that will be needed and that without considering any shocks is that most federal government revenue is now actually 89% and that will continue if nothing is done to be caught up in servicing the debt. This is a reflection of the low incomes of the country. The country needs to mobilize more revenue to be able to have macroeconomic stability. This has become an existential problem for Nigeria.
The IMF reaffirmed its revised forecast for Nigeria’s economic growth at 3.4% in 2022, with an overall fiscal balance of -5.9%, as it forecast the country’s public debt to increase by 38.8% this year. In terms of the level, Aisen said it was still at the moderate level of debt to GDP.
The IMF said the outlook is challenged by high food and energy prices, spending pressures in tight fiscal space, persistent insecurity, especially banditry, kidnappings and electoral risks. .
Other downsides to the economy, according to the IMF, are low COVID-19 vaccination rates, monetary tightening in advanced economies, and moderating foreign investment inflows and exchange rate pressures.
Aisen said growth in Nigeria had picked up significantly despite the uncertainties, adding that Nigeria needed to mobilize more revenue to serve as fiscal support and address macroeconomic issues.
Regarding the effects of the war between Russia and Ukraine, he noted that Nigeria and other countries in sub-Saharan Africa are currently facing high food prices and that 57% of the population of sub-Saharan Africa is currently faced with food insecurity, which worries the IMF.