The World Bank has projected that Nigeria’s inflation rate could drop below 20% by 2026, driven by enhanced monetary policy discipline and broader macroeconomic reforms.
This was highlighted in the bank’s recent assessment of Nigeria’s macroeconomic policy framework, which is supported by the ARMOR Program-for-Results (PforR) initiative and broader fiscal reforms.
According to the World Bank, the Nigerian government is staying the course with “bold and difficult steps” aimed at achieving macroeconomic stability and laying the foundation for inclusive and sustained growth. These measures are expected to bolster economic expansion, with growth anticipated to reach 3.6% in the medium term between 2025 and 2027.
The report read: “Enhanced monetary policy discipline will help bring down inflation to below 20% by 2026, while the policy commitment to more flexible and market-based exchange rate management will ensure the sustainability of external accounts along with a more comfortable FX reserves cushion.
“Over time, the improved macro-fiscal policy framework will need to be complemented by an increasing policy focus on strengthening the efficiency of public spending and implementing structural reforms to lift private investment and foster inclusive, sustainable growth.”
Nigeria’s inflation still high and volatile
The World Bank noted that Nigeria’s inflation, while showing signs of easing, remains persistently high and volatile. After peaking at 34.2% year-on-year in June 2024, inflation dropped to 32.2% in August, thanks to tighter monetary policies and favorable base effects.
- However, it rebounded to 32.7% in September due to one-off factors, including price increases for gasoline and the devastating floods in the northern region. These challenges have exacerbated Nigeria’s inflationary pressures, with food price increases accounting for 60% of the consumer price index (CPI) rise in the 12 months leading up to August 2024. Structural factors such as insecurity and climate shocks have further destabilized food prices.
- The Central Bank of Nigeria (CBN) has taken significant steps to curb inflation through tighter monetary policies and an end to quasi-fiscal activities. Since February 2024, the Monetary Policy Rate (MPR) has been raised by a cumulative 850 basis points to 27.25%.
The CBN also halted development financing for fiscal deficits, focusing on price stability. Moreover, it has conducted large open market operations (OMOs), totaling over NGN 6.6 trillion in the first eight months of 2024—a figure 30% higher than the combined OMOs of the previous three years.
In addition, the CBN adjusted its Cash Reserve Ratio (CRR) policies and increased standing deposit and facility rates, measures aimed at re-anchoring short-term market rates to the MPR and attracting foreign exchange inflows. These steps have strengthened Nigeria’s exchange rate stability and drained excess naira liquidity, aligning with broader efforts to stabilize the macroeconomic environment.
Risk of policy reversal
Despite these gains, the World Bank cautioned that significant risks remain. Reversing reforms—such as returning to multiple exchange rates or relying on the CBN to finance deficits—could exacerbate inflation and debt service costs. Financing pressures could intensify if oil production declines or non-oil revenues falter.
- Domestic risks include potential political instability linked to social hardship, while external threats include imported inflation due to rising global food prices. Additionally, regional instability could undermine trade, investor confidence, and economic recovery.
- Also, the macroeconomic policy framework emphasizes the importance of complementing fiscal reforms with more efficient public spending. These structural reforms are designed to attract private investment and foster sustainable, inclusive growth.
While acknowledging the progress made, the World Bank stressed the need for continued commitment to these reforms. It noted that efforts to improve fiscal sustainability, including the reduction of the fiscal deficit to below 4% of GDP, will play a significant role in achieving macroeconomic stability.
