On Wednesday, the World Bank issued a warning to the central banks of Nigeria, Ethiopia, and Uganda telling them to avoid taking any unusual actions that might conflict with their monetary policies.
The Washington Bank lists these measures as “monetizing the fiscal deficit, direct lending interventions, untargeted subsidy programs, and foreign exchange controls.”
The lender emphasized the serious problem of inflation that monetary authorities in the region faced, particularly in nations that were dealing with “underdeveloped financial systems, a sizable informal sector, and a lack of coordination between monetary and fiscal policies.”
The organization highlighted the potential repercussions, 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 emphasized the ongoing inflationary challenges most of the region’s countries face in its Africa’s Pulse report.
The Office of the Chief Economist in the World Bank Africa Region publishes Africa’s Pulse every two years. It examines the short-term economic outlook for the continent, the development issues that are currently facing the continent, and a particular development issue.
The 2023 report attributed the inflationary issues to a number of factors, including “a global demand slowdown, eased supply chain disruptions, lower commodity prices, and stricter monetary policies.” “Eighteen countries continue to struggle with double-digit inflation despite a projected drop to 7.3 percent in 2023 from 9.3 percent in 2022.
The report focused on the effects on households, especially the poor, who spend a large portion of their income on food due to rising food and fuel prices and depreciating domestic currencies.
The report expressed concern over some countries’ efforts to consolidate their fiscal policies’ slow progress. Nearly two-thirds of the countries in the region still have fiscal deficits that are higher than they were prior to the pandemic in 2023.
The World Bank emphasized the urgent need to address these issues and the necessity of “domestic resource mobilization and efficient spending” in order to reduce the risks associated with fiscal and debt sustainability, stop inflation, and make room for development expenditures.
The World Bank recognized some nations’ efforts to implement revenue reforms, such as those in Kenya and Ghana, and subsidy reforms in Angola and Nigeria, demonstrating the region’s commitment to fiscal consolidation.
In the region, using digital tools for tax administration and compliance has also recently become popular.
