Nigeria, the most populous African nation and one time largest economy is fast losing out, particularly in some economic and social indicators.
She has officially overtaken Ghana as the country with the highest benchmark interest rate in West Africa, following recent hike in the Monetary Policy Rate to 27.5 percent by the Central Bank of Nigeria’s (CBN) Monetary Policy Committee at its last meeting for the year on November 26.
Ghana’s monetary policy committee last week announced that its members agreed to keep rates at 27%, leaving it unchanged as they approach the end of the year.
This move puts Nigeria slightly ahead of Ghana’s 27%, marking a new phase in the monetary policy trajectories of two economies grappling with almost similar challenges.
However, CBN Governor Olayemi Cardoso is optimistic that high interest rates would be eased in coming months if inflation pressures are abated as expected.
Cardoso said that the CBN’s cumulative 875 basis points of rate increases this year were an “essential move” to contain inflation and restore stability, before assuring his audience at the yearly Bankers’ event in Lagos on Friday, that, relief was on the way.
“These measures are not intended to be permanent,” he said at an annual dinner for the banking industry. “We are closely monitoring the data and as inflation shows sustained signs of improvement – something we expect in the near future – we will adjust rates accordingly.”
Cardoso has allowed the naira to trade more flexibly against the dollar and pursued aggressive interest-rate increases to curb rising inflation.
But, Nigeria has seen inflation climb to 33.9% in October, near its highest level since 1996, stoked by fuel and food price increases and persistent currency weakness, which has made imports more costly.
Although the economy has been faced with challenges for many years. President Bola Tinubu’s policy reforms, including the devaluation of the Naira, subsidy removal have worsen the situation through increased poverty and hardship.
However, the government has announced some fiscal incentives to revitalize the oil and gas sector, tax reforms, among others, which some analysts agree, are necessary for ramping the economy.
Nigeria which has held the title of “Africa’s largest economy” since the GDP rebasing in 2013 is believed to have a total GDP of $253 billion in 2024, primarily due to the devaluation of the Naira and now the fourth largest economy in Africa in 2024, behind South Africa, Egypt, and Algeria, according to IMF forecasts for April 2024.
Nigeria has officially overtaken Ghana as the country with the highest benchmark interest rate in West Africa, following CBN’s decision to raise its Monetary Policy Rate (MPR) to 27.5%.
The ugly trends, according to analysts highlight the complexities of navigating economic stability in a region beset by rising inflation, currency depreciation, and fiscal deficits, among others.
Specifically, while Nigeria and Ghana could be said to be confronted with similar headwinds, their responses and approaches to these challenges differ with particular to how monetary policy is wielded as a tool for economic management.
For instance, the two countries share a troubling economic narrative, defined by persistently high inflation, depreciating currencies, and deepening fiscal imbalances:
While Ghana’s inflation, which peaked at over 50% in late 2022, has moderated in recent months, Nigeria’s inflation reached 33.88% in October 2024, the highest in nearly two decades.
:It is on records that both countries have been pursuing aggressive rate hikes, through their Central Banks, aimed at combating inflation and attracting foreign investments.
Ghana’s MPR peaked at 30% in July 2023 before being reduced to 27%, while Nigeria’s rate hikes have culminated in its latest increase to 27.5%.
While the policies reflect a shared economic playbook, the outcomes have diverged. Ghana’s inflation trajectory has begun to stabilize, allowing the Bank of Ghana to hold rates steady since September 2024.
The cedi, though still fragile, has shown signs of recovery following successful debt restructuring efforts and an IMF bailout.
Nigeria, on the other hand, continues to battle spiralling inflation and a sharply depreciating naira. The latest rate hike underscores the Central Bank of Nigeria’s urgency to restore macroeconomic stability, but with inflationary pressures still mounting, the effectiveness of this approach remains uncertain.
But the analysts say the policy similarities between these two African giants should, all things being equal, lead to equally effective results, wondering whether Nigeria’s higher rates will signal, not just economic growth but development.
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The argument is that the current GDP at the exclusion of the manufacturing sector is not inclusive enough to engender development.
But Cardoso is hopeful of a better future:, “Our tight monetary policy stance has altered the previous dire trajectory and we expect a downward trend in 2025,” he said.
Speaking further , he said, “Inflation remains unacceptably high but the signs are encouraging, particularly given that the full affects of monetary policy typically take six to nine months to impact the consumer sector.”
CBN raised its benchmark rate by 25 basis points last week to 27.5%, its sixth consecutive hike of the year to cool inflation near a three-decade high. Analysts expect rate hikes to continue through the second quarter of 2025 as price pressures persist.
However, while naira may have lost about 80 percent of its value since assumption of power by president Tinubu in 2023, it has nevertheless narrowed the gaps between official and black market rates with the attendant reduction in arbitrage and round tripping. Capital inflows have also increased.with higher prospects.
