Nigeria’s High Cost of Living, Macroeconomic Challenges, and Outlook for Next MPC Meeting

Welcome back to the Vault.

This week, we delve into the increasing cost of living in Nigeria and the government’s efforts to address inflation ahead of the Central Bank of Nigeria’s monetary policy decision later this month. Additionally, we look at the escalating cost of credit across Africa as countries contend with the challenges of rising interest rates

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Nigeria’s High Cost of Living, Macroeconomic Challenges, and Outlook for Next CBN MPC Meeting

It’s no news that Nigeria’s policymakers are struggling to address soaring inflation. Signs of citizens’ dissatisfaction are beginning to emerge. Last week, in Niger and Kano states, protests were held over the escalating cost of living.

The protests were a stark expression of their concern and frustration with rising inflation, high interest rates, and the depreciation of the Naira. These factors, combined with low minimum wage, continue to diminish the purchasing power of citizens.

At the same time, economic reforms introduced since President Bola Tinubu’s inauguration nine months ago have not made things any easier. The removal of fuel subsidy, currency devaluation, and introduction of multiple foreign exchange (FX) rules to stabilize the market have placed increased pressures on individuals and businesses.

Here is an overview of the current situation:

  • Annual inflation rate rose from 21.8% in January to 28.9% in December 2023. Food inflation, which accounts for the bulk of Nigeria’s inflation basket, rose to 33.9% by the end of last year.

  • Fluctuating naira-to-dollar exchange rates due to high demand for dollars with an FX backlog of $2.2 billion.

  • The country’s public debt stands at $114.35 billion.

  • The current oil production, which stands at 1.427 million barrels per day as of January, falls significantly short of the 2024 budget target of 1.78 million barrels per day.

  • The interest rate is currently at 18.75% — highest since 2006.

How is the government reacting?

The government recently announced a series of palliatives to alleviate the high cost of living. These include:

  • The release of more than 102,000 metric tons of grain from the National Food Reserve and the Rice Millers Association of Nigeria.

  • The approval of N35,000 provisional wage award for federal government workers for six months to cushion the effect of fuel subsidy removal, starting from October 2023.

  • The authorization of N25,000 for 15 million low-income households for three months

  • N125 billion support in form of conditional grant and financial inclusion to Micro, Small and Medium Enterprises (MSMEs).

  • N200 billion to support the cultivation of 500,000 hectares of farmland

  • The provision of N100 billion to acquire Compressed Natural Gas-fueled buses.

  • The allocation of N50 billion for the student loan scheme.

  • A N185 billion palliative (loan to states) to cushion the effect of fuel subsidy removal.

  • A 50% reduction in the prices of inter-state transport fares during yuletide.

CBN Monetary Policies

The Central Bank has also implemented measures to stabilize the FX market. See here.

The Bank is set to hold its first monetary policy meeting since July on February 26 and 27. Given the prevailing inflationary environment, there is significant pressure on the CBN to substantially increase its benchmark interest rate, which is currently at 18.75%.

Data Vault: Too expensive to borrow

Like Nigeria, the central banks of Zambia and Namibia are set to soon announce interest rate decisions. The interest rate—the cost of credit— has increased for many countries in Africa in the past year. In Nigeria, the rate increased from 16.5% in 2022 to 18.75% in 2023. Likewise, South Africa, Kenya, and Egypt increased their rates from 7%, 8.25%, and 16% in 2022 to 8.25%, 13%, and 21.25% in 2023 respectively.

These rate adjustments are primarily a response to the rising interest rates in advanced economies such as the US, UK, and the European Union. Additionally, they are driven by the imperative to rein in soaring inflation towards target levels.

The trade-off involves a heightened cost of credit for countries in the region, potentially impacting investment, growth, and employment. Moreover, there is a noteworthy impact on debt burdens and fiscal sustainability for countries, attributable to the corresponding rise in dollar-denominated debts.

What policy and insight do you seek?

Whether you are a government official, civil society organization, or researcher, our repository provides comprehensive access to public policies, regulations, and guidelines across Africa. We provide insights and intelligence on these regional policies and regulations for research, advocacy, policymaking, and investing.

Get in touch with us here: <mailto:team@policyvault.africa>.

What we are tracking

We’re also tracking the latest current events in the news, and how they may affect the decisions of policymakers. Below are some of the latest developments.

Malawi | Malawi lifts visa restrictions for 79 countries

Malawi has officially lifted visa restrictions for travelers from 79 countries in an effort to promote tourism. This includes countries such as the UK, China, Russia, Germany, Australia, and Canada. The visa exemption also applies to citizens of the Southern African Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA). However, it’s important to note that nationals from countries that impose visa requirements on Malawian citizens are still subject to those requirements. The goal of this decision is to make it easier for tourists to visit Malawi and boost the country’s tourism industry.

Senegal | Delay of February 25 election ruled illegal by Constitutional Council

On Thursday, Senegal’s Constitutional Council cancelled the decree signed by President Macky Sall that postponed the election. The Council’s judgement, approved by seven members, stated that the National Assembly’s decision to reschedule the vote for December 15 was also contrary to the nation’s constitution. The Council urged the competent authorities to organize the presidential election as soon as possible due to the impossibility of holding it on the initially planned date.

Liberia | President Boakai has launched anti-corruption audits

Liberian President Joseph Boakai has taken action to combat corruption by initiating audits of three important government institutions, including the central bank, national security agency, and executive protection service. The audits, directed by the General Auditing Commission, will cover the period from 2018 to 2023 and are expected to be completed within three months. This effort reflects President Boakai’s commitment to uprooting corruption and promoting transparency within government ministries and agencies.

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