Can Nigeria weather economic shocks?

Nigeria, like many other countries in Sub-Saharan Africa, is facing significant economic challenges as it navigates through a landscape riddled with global uncertainties. According to the International Monetary Fund (IMF), Nigeria's output growth is expected to moderate to 3% this year, with a slight improvement forecasted for the next year. While the near-term outlook faces downside risks, there are some upside prospects over the medium term. In a recent interview with CNBC Africa, Ari Eisen, the IMF Resident Representative for Nigeria, shed light on the policy responses needed to address the current economic turmoil. Eisen highlighted the critical need to combat inflation, which disproportionately impacts the poor segments of society. As inflation rates soar, monetary policy plays a pivotal role in curbing the rising prices. One of the major challenges facing many African countries, including Nigeria, is food security. Eisen emphasized the importance of incentivizing food production through price liberalization, rather than universal subsidies that can strain public finances. By targeting the most vulnerable segments of society with cash transfers and leveraging digitalization, countries can ensure a more efficient and cost-effective approach to safeguarding food security. Another pressing issue highlighted by Eisen is the need for African economies to consolidate public finances. Countries like Nigeria are grappling with high deficits, exacerbated by limited external financing options and expensive domestic borrowing. Eisen recommended measures such as phasing out fuel subsidies and increasing tax revenues to enhance fiscal stability. Addressing the issue of tax compliance and broadening the tax base emerged as crucial steps towards generating more revenue for vital sectors like health and education. By spreading the tax burden more equitably and ensuring good governance, governments can build public trust and bolster their finances. In response to queries about the recent introduction of new currency notes by the Central Bank of Nigeria, Eisen underscored the common practice of central banks worldwide to periodically update banknotes for security purposes. However, he stressed the importance of ensuring a smooth transition and inclusive access to financial services, especially for populations in remote areas. As Nigeria stands at a crossroads, grappling with inflation, food security, fiscal deficits, and currency reforms, decisive policy actions will be crucial in steering the country towards sustainable economic growth. By implementing targeted interventions, enhancing fiscal discipline, and promoting financial inclusivity, Nigeria can weather the storm of economic shocks and emerge stronger in the face of global uncertainty.