The World Bank has listed a series of macroeconomic policy missteps executed by fiscal and monetary authorities between 2015 and 2023 that pushed Nigeria’s inflation to a 28-year high.
In its latest edition of the Nigeria Development Update (NDU), the global lender explained that prior to 2015, Nigeria had a single-digit inflation rate which is in the same range as other emerging economies.
According to the Bank, these macroeconomic missteps include- Ways and Means financing of fiscal deficits by the Central Bank of Nigeria (CBN), granting of large credits at subsidised rates to households and businesses also by Nigeria’s apex bank, banning of access to FX for importation of over 900 products, cost of maintaining an overvalued exchange rate and unbudgeted fiscal deficits.
The report stated, “From 2015, however, the CBN shifted its primary focus away from price stability – its core mandate – ostensibly towards growth objectives, by providing large amounts of credit to households and firms at subsidized rates, as well as prohibiting access to FX to import over 900 product lines.
- Large and unbudgeted fiscal deficits, as well as the costs associated with maintaining an overvalued exchange rate,
- increasingly subjugated monetary policy to financing fiscal deficits, including through deficit monetization through Ways and Means Advances.”
The World Bank further noted that the huge Ways and Means advanced by the CBN resulted in large cash in circulation which weakened confidence in the Naira and contributed to the spike in inflation even before the reforms in the foreign exchange and energy sector kicked in. Nigeria’s inflation peaked at a 28-year high of 24.19% in June 2024- marking 19 months of consistent increase.
Reversal of the previous policies of the CBN
Nigeria’s Central Bank during the era of former and now embattled Governor, Godwin Emefiele was noted for significant development financing to the private sector to the tune of trillions of Naira. Current Governor Yemi Cardoso estimates the total amount of development finance granted by the apex bank at N10 trillion.
Also, the current management of the CBN has halted fiscal intervention financing stating that the apex bank lacks the capacity for such interventions.
The new management of CBN has also rolled back other policies of its predecessors such as the ban on access to foreign exchange for specific products. The CBN last year lifted the ban on access to forex to 43 items which were hitherto prohibited from access on the official FX market.
Furthermore, the major change introduced by the Yemi Cardoso-led Central Bank is the unification of different segments of the foreign exchange market which saw the Naira lose over 100% of its value since June 2023 when it was enacted.
On the fiscal front, the Minister of Finance, Chief Wale Edun has stated that the federal government will not resort to Ways and Means financing to cover the fiscal deficit, unlike the previous administration which borrowed over N22 trillion in Ways and Means- above the provisions of the Fiscal Responsibility Act (FRA).
