IMF Sees Nigeria Inflation Rate Rise Over Excess Liquidity, Negative Real Yields On Debt
Nigeria may see inflationary pressures rising from excess liquidity in the banking system due to negative real yield on short-term government debts, the International Monetary Fund (IMF) said.
Yields on Nigeria’s one-year Treasury bills is at lowest since January 2016, while interest on three-month debt dropped to 6.5 percent as local funds pile into the debt after the Central Bank of Nigeria (CBN) restricted their access to its higher-yielding securities.
Six months government paper fell as much 19.7 percent, most in about four years.
“In view of inflationary pressures —including from 4Q budget implementation and rising minimum wages— and with inflation at 15-month high, a tight monetary policy remains necessary,” Amine Mati, IMF Nigeria’s chief said in emailed response to questions.
While low yield could spur bank lending, higher import demand will increase pressures on the exchange rate and international reserves, he said.
Central bank Governor Godwin Emefiele said during November monetary policy review that inflationary pressure was due in part to seasonal end-of-the year uptick in prices and border closure that has led to “food supply shock which will adjust over the medium-to-long term as the economy increase investments in food production.”
The IMF supports Nigeria’s efforts to boost revenue by increasing value-added tax to 7.5 percent.
“Additional measures, including higher excises, removal of exemptions, would be needed to help increase revenue to the 15 percent of GDP target the authorities set for themselves and necessary to meet the country’s large spending needs,” Mati said.