The World Bank has issued a warning to the Central Banks of Nigeria, Ethiopia, and Uganda, advising them to avoid unconventional actions that might harm their monetary strategies.
These measures, as stated by the World Bank in Washington, encompass actions like “turning government debt into money, direct financial interventions, broad-based support programs, and foreign exchange regulations.”
The World Bank has stressed the significant issue of rising prices that monetary authorities in the region face, particularly in countries with “underdeveloped financial systems, a sizable informal sector, and a lack of coordination between monetary and fiscal policies.”
The organization has underscored the potential consequences and noted, “Failure to effectively synchronize monetary and fiscal measures to curb inflation could raise the risk of unmooring inflation expectations, resulting in further inflation, heightened interest rates, and a slowdown in economic growth.”
In its Africa’s Pulse report, the World Bank has emphasized the ongoing inflationary challenges faced by most of the region’s countries. Africa’s Pulse is published every two years by the World Bank Africa Region’s Office of the Chief Economist. It assesses the continent’s short-term economic outlook, prevailing development concerns, and specific development challenges.
The 2023 edition of the report attributed the inflationary challenges to several factors, including “a global drop in demand, eased disruptions in supply chains, reduced commodity prices, and stricter monetary policies.”
Despite a projected decrease from 9.3% in 2022 to 7.3% in 2023, 18 countries are still grappling with double-digit inflation. The report underscored the impact on households, especially the poor, who allocate a substantial portion of their income to food, due to rising food and fuel costs and weakening local currencies.
The report expressed concern about the slow progress in implementing measures to strengthen fiscal policies in many countries dealing with fiscal challenges. In 2023, budget deficits remain higher than pre-pandemic levels for over two-thirds of the region’s countries.
The World Bank has emphasized the urgent need to address these issues and the importance of “raising domestic revenue and efficient spending” to mitigate risks associated with fiscal and debt sustainability, curb inflation, and create room for development expenditures.
The report acknowledged the efforts of several nations in adopting tax reforms, such as Kenya and Ghana, and subsidy reforms in Angola and Nigeria, indicating the region’s commitment to fiscal consolidation. Additionally, the use of digital technologies for tax administration and compliance is emerging as a new trend in the region.