By Charles Igwe
The International Monetary Fund (IMF) has sounded the alarm, projecting a potential 35% depreciation of Nigeria’s currency, the Naira, in 2024. This depreciation, coupled with ongoing production challenges, may lead to a significant surge in inflation, reaching as high as 44%.
In its February 2024 Post–Financing Assessment and Staff Report, the IMF highlighted the inadequacy of current monetary policy measures to curb inflation, particularly with persistent pressures on the Naira. The report attributed the potential further depreciation of the exchange rate to factors such as limited local production and recent liberalization of commodity imports.
The IMF pointed out that Nigeria’s agricultural sector, already weakened by adverse climate shocks including severe flooding in late 2022, continues to suffer, contributing to output declines and soaring food prices.
To address these challenges, the IMF emphasized the need for Nigeria to develop a comprehensive macroeconomic and growth strategy, in collaboration with development partners. This strategy should include aggressive monetary tightening, fiscal adjustments to restore macroeconomic stability, and measures to adapt to climate change.
The IMF warned of a potential economic slowdown, forecasting zero growth in 2024, with a gradual recovery to two percent by 2028. Additionally, it highlighted risks associated with Nigeria’s fiscal deficit, which could exceed six percent of GDP in 2024 and 2025, driven partly by increased social spending and fuel subsidies.
The report also raised concerns about Nigeria’s external financing options, predicting a decline in reserves and potential difficulties accessing international financing. These challenges could exacerbate existing poverty and food insecurity issues, requiring careful prioritization of spending between debt service and urgent humanitarian needs.
