Nigeria Faces Escalating Currency Crisis and Food Insecurity

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Nigeria is grappling with an unprecedented currency crisis and surging inflation, with the International Monetary Fund (IMF) cautioning that nearly one in ten people are encountering food insecurity.

In January, inflation surged to a staggering 29.9% annually, driven by soaring food prices, triggering a cost-of-living crisis in Africa’s largest economy. The Nigerian naira also plummeted to a historic low of around 1,600 against the U.S. dollar by late February.

President Bola Tinubu’s administration, which took office in May 2023, inherited a precarious economic situation characterized by sluggish growth, rising inflation, low revenue collection, and trade imbalances accumulated over the years.

The government swiftly implemented economic reforms aimed at liberalizing the economy, including the removal of fuel subsidies and relaxing currency controls. While these reforms were welcomed by foreign investors, they unveiled various macroeconomic issues previously contained by interventionist policies.

IMF staff recently completed a mission to Nigeria, acknowledging that economic growth reached 2.8% in 2023, slightly below the level required to support the country’s rapid population growth.

The IMF projects GDP growth to reach 3.2% in 2024, attributing improvements to increased oil production and expectations of a better harvest in the latter half of the year. However, challenges such as high inflation, naira depreciation, and policy tightening pose obstacles to growth.

Addressing rising food insecurity is a pressing policy priority, with approximately 8% of Nigerians deemed food insecure. The IMF commended Nigeria’s implementation of an effective social protection system, release of grains and fertilizers, and promotion of dry-season farming.

Recent government efforts to enhance revenue collection and oil production were noted positively by the IMF, along with the Central Bank of Nigeria’s decision to raise interest rates to 22.75% to curb inflation and stabilize the naira.

However, concerns linger regarding the impact of loose fiscal policy and interventionist tendencies on inflation and currency stability. The private sector momentum in Nigeria slowed in February, indicating challenges such as input price inflation and output cost inflation stifling confidence and business activity.

Oxford Economics anticipates real GDP growth of 2.8% in 2024, driven by improvements in the hydrocarbon sector despite weaknesses in the non-oil economy. Upside risks include recovering domestic industries, increased foreign investments, and easing inflation, while downside risks include sticky prices, exchange rate volatility, oil price fluctuations, and domestic insecurity.