The World Bank cited a series of macroeconomic policy failures implemented by fiscal and monetary authorities between 2015 and 2023 that pushed inflation in Nigeria to its highest level in 28 years.
In its latest edition of the Nigeria Development Update (NDU), the global financial institution explained that before 2015, Nigeria’s inflation rate was in the single digits, in the same range as other emerging economies.
According to the bank, these macroeconomic failures include instrumental financing of the fiscal deficit by the Central Bank of Nigeria (CBN), granting of large subsidized loans to households and businesses by Nigeria’s apex bank, and foreign This includes banning access to foreign exchange. Imports of over 900 products, the cost of maintaining an overvalued exchange rate, and an unbudgeted budget deficit.
The report said: “Since 2015, however, the CBN has shifted its main focus away from price stability (its core mission), providing large amounts of credit to households and businesses at subsidized interest rates, as well as to financial institutions. ostensibly shifted its focus to growth objectives.” FX imports over 900 product lines.
Due to large unbudgeted budget deficits and the costs associated with maintaining overvalued exchange rates, monetary policy has become increasingly restrained to finance deficits, including monetizing deficits through revenue promotion. . ” The World Bank further said that the huge measures and measures advanced by the CBN resulted in large amounts of cash in circulation, which weakened confidence in the naira and contributed to the spike in inflation even before foreign exchange and energy sector reforms began. It was pointed out that it became. In June 2024, it hit a 28-year high of 24.19%, continuing to increase for 19 consecutive months.
Reversal of CBN’s previous policy
The Central Bank of Nigeria was known for making large-scale development loans to the private sector amounting to trillions of naira during the era of now-embattled former governor Godwin Emefiele. The current governor, Emi Cardoso, estimates the total amount of development loans given by the apex bank to be NOK 10 trillion.
The current management of the CBN has also suspended fiscal intervention loans, saying the apex bank does not have the capacity to make such interventions.
CBN’s new management also rescinded other policies of its predecessor, such as banning access to foreign currency for certain products. Last year, the CBN lifted the ban on foreign exchange access for 43 items that were previously prohibited from accessing the official foreign exchange market.
Furthermore, a major change introduced by the Central Bank led by Yemi Cardoso is the consolidation of the various segments of the foreign exchange market, which will allow the Naira to retain 100% of its value since June 2023, when the Naira was enacted. I ended up losing more than that.
On the fiscal front, the Minister of Finance, Chief Wale Edun, said the federal government would not resort to capital loans to cover the budget deficit, unlike the previous administration, which borrowed over N22 trillion beyond the stipulated amount. Ta. Fiscal Responsibility Act (FRA) provisions.
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