The World Bank’s latest Africa’s Pulse report sheds light on the challenging economic situation faced by Nigeria, Angola, and Sierra Leone, where double-digit inflation and the depreciation of domestic currencies have necessitated prolonged high interest rates. The report highlights the need for central banks in these countries—specifically Nigeria, Angola, and Sierra Leone—to adopt a “higher-for-longer” monetary policy stance. This approach contrasts with some other African nations that are beginning to lower or maintain their benchmark rates, as the inflationary pressures in Nigeria and its counterparts have yet to peak. The combination of currency weakness, slow fiscal adjustments, and persistent cost pressures is compelling these nations to keep interest rates elevated to combat these economic challenges effectively.
In Nigeria’s recent economic landscape, the National Bureau of Statistics announced an alarming acceleration in inflation rates, reaching 32.7% in September after a brief decline. The root causes of this inflationary spike are primarily linked to soaring fuel prices, which have diminished the seasonal relief typically provided during harvests. In response, the Central Bank of Nigeria recently raised the benchmark interest rate by 50 basis points to 27.25%, signaling an aggressive approach to curtail inflation. The World Bank emphasizes that unless inflation rates in these affected countries begin to stabilize, central banks will have to consider further increases in policy rates to protect currencies and maintain economic stability.
The report also underscores how social measures in response to rising living costs, such as Angola’s minimum wage adjustments and Nigeria’s partial reinstatement of fuel subsidies, are putting additional strain on public finances. These interventions aim to counteract the adverse effects of high inflation but can inadvertently exacerbate fiscal challenges. The ongoing economic pressures faced by Nigeria, Angola, and Sierra Leone indicate that a delicate balance needs to be struck between supporting vulnerable populations and maintaining fiscal discipline to prevent further economic deterioration.
The World Bank’s findings illustrate that Nigeria’s currency, the naira, has been among the worst performers in Sub-Saharan Africa in recent times. By the end of August 2024, the naira had depreciated approximately 43% year-to-date, making it one of the weakest currencies in the region alongside the Ethiopian birr and South Sudanese pound. This drastic depreciation is attributed to several factors, including a surge in demand for US dollars in the parallel market, an insufficient inflow of these dollars, and delays in the disbursement of foreign exchange by the central bank, further complicating the economic landscape for Nigeria.
The report highlights that various entities, including financial institutions, non-financial end-users, and money managers, have intensified the demand for US dollars, thus exacerbating the currency crisis. The limited availability of foreign currency and the sluggish response from the central bank in facilitating dollar disbursements to currency exchange bureaus have only worsened the naira’s performance. Accordingly, as these economic vulnerabilities persist, the need for comprehensive policy measures to stabilize the currency and curb inflation becomes all the more critical.
In summary, the World Bank’s analysis reveals a complex economic scenario for Nigeria, Angola, and Sierra Leone, characterized by high inflation, weakened currencies, and ongoing fiscal pressures. The countries’ central banks are likely to maintain high monetary policy rates, potentially increasing them further to address these challenges. As domestic markets grapple with the repercussions of rising costs and currency depreciation, policymakers must navigate a precarious balance between protecting public welfare and ensuring economic stability to foster sustainable growth in the face of daunting economic realities.
