Nigeria central bank’s financing of the budget deficit must be phased to reduce inflation and higher interest rates may also be needed, the lender said. The central bank held its key rate for a second straight meeting in January, International Monetary Fund,(IMF) has said.
Inflation in Nigeria reached a three-year high of 15.8% in December and while a 10% currency devaluation could push the rate up by as much as 2.5 percentage points, the impact would be less if the parallel exchange-market rate is already reflected in the prices of imported goods, the IMF said.
The IMF warned that slow economic growth coupled with high inflation could continue to fan social discontent, which spilled over last year with protests against a police unit accused of torture and assassinations.
A slow rollout of Covid-19 vaccinations in Africa’s most-populous nation could threaten the IMF’s projections for economic growth of 1.5% this year, from an estimated 3.2% contraction in 2020.
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“Nigeria has a way to go before ensuring adequate vaccine doses for its population, which will be critical to economic recovery,” said Rahman. The IMF expects the economy to return to pre-pandemic levels only next year.