Fact check: IMF 44% Nigeria inflation projection is worst-case scenario

On Monday, an X user @Imran Muhammad tweeted that the International Monetary Fund (IMF) projected Nigeria’s headline inflation to hit 44 percent in 2024.

“The IMF predicts that the inflation rate in Nigeria could reach as high as 44% due to the worsening value of the naira. In its latest evaluation report on Nigeria’s post-financing status, the IMF has depicted a concerning outlook for the nation’s economic prospects.”

A fact check by BusinessDay showed that IMF presented a mixed outlook for Nigeria’s inflation, warning of a potential surge to 44 percent in a worst-case scenario while simultaneously projecting a more optimistic path towards 17 percent if decisive monetary policy tightening is implemented.

This dual forecast emerged from the IMF’s evaluation report on Nigeria’s post-financing status.

The report outlines a “downside scenario” where insufficient policy action, continued pressure on the naira, and adverse climate shocks could create an inflation-depreciation spiral, pushing inflation to alarming levels.

“An adverse scenario of an inflation-depreciation spiral combined with a climate shock would increase risks to Nigeria’s capacity to repay the Fund,” it said.

The adverse scenario includes; if monetary policy is tightened insufficiently, pressures on the naira persist and Nigeria is hit by another adverse climate shock in early 2024 (following severe flooding in late 2022) that exacerbates the current weakness in agriculture and leads to a decline in output and a surge in food prices.

It added that “Given the absence of local production and the recent liberalization of commodity imports, the exchange rate would likely depreciate further- by an estimated 35 percent in 2024-and contribute to a further sharp rise in inflation, peaking at 44 percent, before monetary policy is eventually tightened sharply.”

However, the IMF also offers a more optimistic outlook suggesting inflation could return to historical levels by the end of 2024 if decisive monetary policy tightening occurs.

“Inflation is projected to peak at the end of 2023 but the food component rises through Q1 2024 linked to naira depreciation. By the end of 2024, inflation should gradually return to historical levels of 17 percent year-on-year at end-2024 helped by base effects phasing out and assuming monetary policy tightening,” it said.

The current benchmark interest rate stands at 18.5 percent and analysts expect a 300 basis points hike by the CBN when the Monetary Policy Committee meets on February 26 and 27.