Nigeria has officially overtaken Ghana as the country with the highest benchmark interest rate in West Africa, following the Central Bank of Nigeria’s (CBN) decision to raise its Monetary Policy Rate (MPR) to 27.5%.
Ghana’s monetary policy committee announced on Friday that its members agreed to keep rates at 27%, leaving it unchanged as we approach the end of the year.
This move puts Nigeria slightly ahead of Ghana’s 27%, marking a new phase in the monetary policy trajectories of two economies grappling with eerily similar challenges.
The shift highlights the complexities of navigating economic stability in a region beset by rising inflation, currency depreciation, and fiscal deficits.
Yet, while both nations face comparable headwinds, their responses highlight nuanced differences in how monetary policy is wielded as a tool for economic management.
Parallel Challenges
Ghana and Nigeria share a troubling economic narrative, defined by persistently high inflation, depreciating currencies, and deepening fiscal imbalances:
- Exchange Rate Pressures: Both the Ghanaian cedi and the Nigerian naira have suffered significant devaluation in recent years. In Nigeria, the naira has lost over 80% of its value against the U.S. dollar in 2024 alone, largely due to foreign exchange inflows and speculative pressures.
- Soaring Inflation: Inflation in both countries has been driven by a combination of rising food prices, fuel costs, and currency depreciation. Ghana’s inflation, which peaked at over 50% in late 2022, has moderated in recent months while Nigeria’s inflation reached 33.88% in October 2024, the highest in nearly two decades.
- Widening Fiscal Deficits: Heavy debt burdens and large budget deficits exacerbate the economic woes. Both nations have resorted to costly borrowing to finance government expenditures, leaving little fiscal space for growth-oriented policies.
Similar Policy Playbooks
The two countries have implemented strikingly similar monetary and fiscal policies to address these challenges:
- Aggressive Rate Hikes: Both central banks have leaned on steep interest rate hikes to combat inflation and attract foreign investment. Ghana’s MPR peaked at 30% in July 2023 before being reduced to 27%, while Nigeria’s rate hikes have culminated in its latest increase to 27.5%.
- Currency Reforms: Both countries have moved toward exchange rate unification and greater flexibility. In Nigeria, the CBN eliminated the official exchange rate window in 2023, while Ghana has worked to stabilize the cedi through interventions and debt restructuring.
- Fiscal Tightening: Nigeria and Ghana have removed costly subsidies—fuel subsidies in Nigeria and electricity subsidies in Ghana—to reduce fiscal deficits. Both have also introduced tax reforms to boost government revenues, though the measures have been met with public resistance.
Diverging Outcomes
While the policies reflect a shared economic playbook, the outcomes have diverged. Ghana’s inflation trajectory has begun to stabilize, allowing the Bank of Ghana to hold rates steady since September 2024.
- The cedi, though still fragile, has shown signs of recovery following successful debt restructuring efforts and an IMF bailout.
- Nigeria, on the other hand, continues to battle spiralling inflation and a sharply depreciating naira. The latest rate hike underscores the Central Bank of Nigeria’s urgency to restore macroeconomic stability, but with inflationary pressures still mounting, the effectiveness of this approach remains uncertain.
Implications for West Africa
The rivalry between Ghana and Nigeria on interest rates is more than a monetary policy footnote—it indicates the precarious balance that West African economies must strike between inflation control, currency stabilization, and growth.
- For Nigeria, the road ahead is fraught with risks. Higher rates may curb inflation and attract foreign inflows, but they will also increase borrowing costs for businesses and households, potentially stifling growth. Ghana, meanwhile, faces the challenge of maintaining stability while avoiding a policy reversal that could reignite inflationary pressures.
- Ultimately, the story of Nigeria and Ghana reflects the broader struggles of African economies in a high-inflation, high-debt era.
The question now is whether the policy similarities between these two giants can lead to equally effective results or whether Nigeria’s higher rates will signal deeper economic distress.