In a recent turn of economic events, the Naira has faced a further depreciation against dollar, reaching a concerning N1,900/$ at the parallel market.
The International Monetary Fund (IMF) has sounded the alarm, predicting a potential 35% depreciation to N2,081/$1 in the official market. Brace yourself for the ripple effects.
According to the IMF’s February 2024 Post–Financing Assessment and Staff Report, our nation’s monetary policy might be insufficiently tightened to rein in inflation, which could peak at a staggering 44%. The IMF suggests that before we can regain control, we might experience some economic turbulence.
The report highlights the absence of local production and recent liberalization of commodity imports as factors likely to contribute to further depreciation of the Naira. Adding to our woes, Nigeria faced another climate shock in early 2024, exacerbating weaknesses in agriculture and causing a surge in food prices.
The IMF recommends a comprehensive macroeconomic and growth strategy, emphasizing aggressive monetary tightening, fiscal adjustments for stability, and climate adaptation measures. This collaboration, with support from development partners, is seen as vital to navigating the challenges ahead.
The publication raises concerns over Nigeria’s growth prospects, predicting a potential dip to zero in 2024, with a slow recovery to two percent in 2028. The uncertainty surrounding our net international reserves and potential external shocks pose additional risks, impacting stability, poverty, and food security.
Furthermore, the report indicates a potential fiscal deficit increase above six percent of GDP in 2024 and 2025. This surge is attributed to factors such as addressing social unrest and a rise in implicit fuel subsidies. The use of CBN and domestic financing is on the rise, raising questions about the sustainability of current economic measures.
As we navigate these economic waters, the IMF emphasizes the need for strategic planning, urging authorities to balance external debt service with urgent humanitarian needs. The path ahead may be challenging, but with informed decisions and collaborative efforts, we can steer our ship through these turbulent economic waves.
