President Bola Tinubu’s plan to reduce inflation rate to 15 per cent in 2025 is exciting. The country had recorded 34.88 per cent inflation in the month of December, 2024. This represents a significant increase compared to the 28.92 per cent recorded in the corresponding period in December, 2023.
Considering the prevailing economic challenges, we believe that achieving the 15 per cent inflation rate for 2025 is a tall order. The target is equally unrealistic and hard to achieve. The key economic fundamentals, which drive headline inflation such as food inflation, increasing fuel prices, depreciation of the naira, energy deficit, manufacturing deficiency and insecurity are yet to be fully addressed.
Following the president’s revelation to reduce inflation rate to 15 per cent, the Central Bank of Nigeria (CBN) explained that achieving the government’s target will require effective collaboration between the monetary, fiscal authorities and the private sector. The Deputy Governor, Economic Policy Directorate of the CBN, Muhammed Abdullahi, stated this in Lagos, at the 11th National Economic Outlook: Implications for Businesses in 2025, organised by the Chartered Institute of Bankers of Nigeria (CIBN). According to him, the CBN has projected inflation to decline this year following government’s economic reforms.
However, he did not say exactly by how much the decline will be in the coming months. The GDP, he said, is expected to grow by 4.17 per cent this year, from 3.46 per cent recorded in 2024. The projections are based on sustained implementation of the reforms, which yet to impact the lives of Nigerians who are grappling with economic hardship. The high inflation and naira depreciation have plunged millions of Nigerians into multidimensional poverty.
Controlling inflation is critical for economic development, as it will help increase the purchasing power of the people, attract investment, and promote social equality.
If the government achieves the 15 per cent inflation rate this year, which will be commendable, it will enhance economic stability. However, the government should be mindful of imaginary expectations because the fundamentals of the economy make the target unrealistic. For example, the latest survey by the Nigerian Economic Summit Group NESG – Stanbic IBTC Business Confidence Monitor (BCM) – shows that the lowest inflation rate the country can achieve in 2025 is 27 per cent.
To achieve an inclusive and sustainable economic growth, the policy reforms must address key components that drive inflation, especially food inflation. As at May 29, 2023, Nigeria’s inflation rate was 22.41 per cent. It rose astronomically to 34.88 per cent in December, 2024, about 13 per cent higher. This was as a result of the removal of fuel subsidy, depreciation of the Naira, and the unification of the foreign exchange market, among other factors. Rather than shore up the value of the naira against major foreign currencies, the naira has been on a free-fall for most of last year, from N1,416/$ that Tinubu administration inherited, to over N1,800/$1 in the last three months.
We agree with the CBN that an effective collaboration is urgently needed among the monetary authority (CBN), the federal government and the private sector. Many federal government’s policy measures have not been properly thought through before implementation. High interest rate is stoking inflation.
Increasing the Monetary Policy Rate (MPR), which the CBN has done many times in the last one year, and other structural issues have become counter-productive as they have worsened the economic hardship of Nigerians. Businesses are struggling under exorbitant borrowing costs of between 35 and 40 percent, thereby forcing business owners to recover their expenses through higher prices which have pushed inflation up. Solutions to tame high inflation must be found through realistic, measurable indices. On the part of the CBN, a contractionary monetary policy is a common method for controlling inflation. This approach reduces the supply of money in the economy by lowering bond prices and raising interest rates.
When interest rates rise, borrowing becomes more expensive, leading to reduced spending and demand. It also helps slow down inflationary headwinds.
Though monetary policies are expansionary in nature, if properly implemented, they can stimulate economic activities, and create employment opportunities. We urge the CBN and the federal government to embrace other options that have worked in other economies for taming inflation. This should include, but not restricted to diversifying the economy and bolstering non-oil sector to avoid dependence on oil revenue. It is high time the monetary and fiscal authorities reviewed its various policies to align with economic realities.