The World Bank has issued a warning to the Central Banks of Nigeria, Ethiopia, and Uganda, advising them to avoid unconventional measures that could undermine their monetary policies. These measures, according to the World Bank, include “monetizing the fiscal deficit, direct lending interventions, untargeted subsidy programs, and foreign exchange controls.”
The World Bank emphasized that these countries are grappling with the critical challenge of inflation, particularly in the face of underdeveloped financial systems, a substantial informal sector, and a lack of coordination between monetary and fiscal policies.
The consequences of inadequate coordination between monetary and fiscal actions, as per the World Bank, could lead to de-anchoring inflation expectations, further inflation, increased interest rates, and a slowdown in economic activity.
In its Africa’s Pulse report, the World Bank highlighted the persistent inflationary challenges faced by many countries in the region. The report attributed these challenges to various factors, including a global demand slowdown, eased supply chain disruptions, lower commodity prices, and stricter monetary policies.
Despite a projected decrease in inflation to 7.3 percent in 2023 from 9.3 percent in 2022, 18 countries in the region are still dealing with double-digit inflation. This has a significant impact on households, particularly the poor, who allocate a significant portion of their income to food due to rising food and fuel costs and weakened domestic currencies.
On fiscal matters, the report expressed concern about the slow progress of fiscal consolidation efforts in some countries, with fiscal deficits remaining higher than pre-pandemic levels in nearly two-thirds of the region’s nations in 2023.
The World Bank stressed the urgency of addressing these issues, emphasizing the importance of domestic resource mobilization, efficient spending, and fiscal and debt sustainability. It acknowledged the efforts of some countries in implementing revenue and subsidy reforms and noted the growing use of digital tools for tax administration and compliance in the region.
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