IMF Forecasts 3.3% GDP Growth, Lower Double Digits Inflation For Nigeria In 2025
...As Currency In Circulation Surged By 4.01% To N4.31tr On Monthly Basis In September
By Edu Abade
The International Monetary Fund (IMF) has projected Nigeria’s real Gross Domestic Product (GDP) to increase from 2.92 percent in 2024 to 3.3 percent in 2025, while consumer price inflation is expected to decline from 32.5 percent to 25.0 percent.
In its World Economic Outlook report for October 2024, the IMF pegged Nigeria’s inflation rate at double digits, which it said, will exceed targets in nearly half of the region.
It also maintained that external debt will increase from 22.7 percent of GDP in 2024 to 25.0 percent in 2025, while reserves are expected to increase to 7.2 percent of imports, up from 6.8 percent.
Although regional GDP weighted headline inflation is expected to decline from 18.1 percent in 2024 to 12.3 percent in 2025 and will remain higher in oil-exporting countries like Nigeria, but projected fiscal consolidation is expected to improve the external sector, with the median current account deficit decreasing from 4.3 percent in 2024 to 3.7 percent in 2025.
However, oil exporters like Nigeria might see their current account surpluses narrow from 1.5 percent to approximately zero percent, just as recent macroeconomic adjustments, such as reductions in fuel subsidies and increased exchange rate flexibility, have intensified short-term hardships.
Reacting to the report, the Centre for the Study of the Economies of Africa (CSEA), said the Federal Government should put policies in place to curb inflation to ensure the decline projected is attained, adding: “Additionally, domestic resource mobilisation should be prioritized to reduce borrowings and increase in fiscal expenditure.”
Meanwhile, the Central Bank of Nigeria (CBN) data on money and credit showed that money in circulation increased by 56.13 percent year-on-year, reaching N4.31 trillion in September 2024, up from N2.76 trillion in September 2023.
This surge reflects a 4.04 percent rise in cash circulating in the economy, rising from N4.14 trillion in August 2024, a trend which highlights Nigeria’s heavy reliance on cash transactions with cash held outside banks growing faster than money in circulation.
Also, Nigeria’s money supply (M3) increased substantially to N66.95 trillion in September 2024, up 62.8 percent from N41.94 trillion in the previous year and showing a 1.6 percent rise from N65.19 trillion in August 2024.
However, the increase in currency circulation and overall money supply suggests pressures that may exceed Nigeria’s productive capacity, contributing to Increase in inflation.
Approximately 93.1 percent of Nigeria’s currency in circulation was being held outside banks in September 2024, compared to 87.5 percent the previous year. The shift may be attributed to factors such as low trust in banking services, inflationary pressures, and the cash-dependent nature of Nigeria’s informal economy.
The rising currency circulation and expanding money supply present complex challenges for the economy, highlighting the need for targeted policy interventions.
The Cashless Policy by the CBN aims to reduce reliance on cash transactions, potentially easing inflation by controlling currency circulation and money supply.
Therefore, the CSEA advised that commercial banks and financial systems regulators should address the challenges like network glitches and insufficient Automated Teller Machines (ATMs) to ensure that effective electronic payment channels are available to implement the policy for conciseness and clarity.
