The World Bank has cautioned the Central Banks of Nigeria, Ethiopia, and Uganda on Wednesday to avoid using unusual actions that could weaken their monetary policies.
According to the Washington Bank, these measures include “monetizing the fiscal deficit, direct lending interventions, untargeted subsidy programs, and foreign exchange controls.”
The lender emphasised the critical challenge of inflation faced by monetary authorities in the region, particularly in countries struggling with “underdeveloped financial systems, a substantial informal sector, and a lack of coordination between monetary and fiscal policies.”
The organization highlighted the potential consequences, stating, “If monetary and fiscal actions are not adequately coordinated to bring down inflation, the risk of de-anchoring inflation expectations would fuel further inflation, accelerate interest rate increases, and exacerbate the deceleration of economic activity.”
The World Bank, in its Africa’s Pulse report, emphasized the ongoing inflationary difficulties experienced by many countries in the region.
Africa’s Pulse is a semi-annual publication from the Office of the Chief Economist in the World Bank Africa Region. It assesses the continent’s near-term economic outlook, prevailing development obstacles, and explores a specific development-related subject.
The 2023 edition of the report attributed the inflationary challenges to several factors, including “a global demand slowdown, eased supply chain disruptions, lower commodity prices, and stricter monetary policies.”
Despite a projected decrease from 9.3 percent in 2022 to 7.3 percent in 2023, double-digit inflation remains a challenge for 18 countries.
The report highlighted the adverse impact on households, especially those with lower incomes who allocate a significant portion of their earnings to food, due to escalating food and fuel prices and the depreciation of domestic currencies.
In terms of fiscal matters, the report expressed concern about the slow progress in fiscal consolidation efforts in some countries. In 2023, fiscal deficits continue to exceed pre-pandemic levels in nearly two-thirds of the region’s nations.
The World Bank emphasized the urgency of addressing these issues, stressing the importance of “domestic resource mobilization and efficient spending” to mitigate fiscal and debt sustainability risks, control inflation, and create room for development spending.
The World Bank also acknowledged the efforts of certain countries, such as Kenya and Ghana, in implementing revenue reforms, as well as Angola and Nigeria in subsidy reforms, demonstrating the region’s commitment to fiscal consolidation.
Furthermore, the adoption of digital tools for tax administration and compliance has emerged as a recent trend in the region.