Nigeria has been grappling with spiralling inflation, which reached a 28-year high of 34.6 percent in November 2024. The federal government anticipates bringing Inflation down to 15 percent in 2025, but some experts argue that achieving this target will require decisive action. Analysts highlight critical inflation drivers such as excess liquidity, volatile exchange rates, and escalating Food Prices as key challenges. Economist Basil Abia suggests a more realistic forecast of 31 percent based on VerivAfrica’s predictive model, cautioning that without comprehensive reforms, the anticipated decline may remain elusive.
The Central Bank of Nigeria (CBN) has implemented stringent monetary policies to combat inflation, raising the benchmark Interest Rate to 27.5 percent this year from 18.75 percent at the close of 2023. Governor Olayemi Cardoso is confident that inflation will decline in 2025 as these measures take effect. Meanwhile, global financial institutions have provided differing forecasts, with the International Monetary Fund predicting 23 percent and the African Development Bank projecting an inflation rate of 20.7 percent. These varying predictions highlight the complexity of Nigeria’s economic situation, compounded by high fuel prices and exchange rate instability.
Foreign investment as a catalyst for inflation control.
However, Insights from other nations illustrate potential pathways for Nigeria. Turkey, for instance, drastically reduced its inflation from 83 percent in 2022 to 47.1 percent in 2024 through Productivity boosts, cuts in public spending and tight monetary policies. Similarly, Argentina and Indonesia provide valuable examples. Argentina’s currency stabilisation efforts and balanced budget initiatives helped moderate inflation, while Indonesia employed robust measures such as supply chain management and price Regulation to maintain inflation rates below 6 percent. Nigeria could adapt these strategies to its unique context, focusing on prudent fiscal management and economic diversification.
Furthermore, attracting substantial Foreign Direct Investment (FDI) also emerges as a critical solution. Economist Ayo Teriba advocates for policies aimed at securing $50 billion in FDI to stabilise Nigeria’s economy, achieve a single-digit inflation and reduce reliance on borrowing. However, the country’s poor credit rating and high borrowing costs hinder such progress. Teriba argues for a shift from debt dependence to equity-based financing, stressing that a well-structured investment framework is essential for fostering macroeconomic stability and driving growth.
Adopting global best practices for sustainable growth.
To strengthen its economic resilience, Nigeria must undertake bold reforms. Instituting a transparent, diversified Economy can alleviate excessive reliance on imports while boosting productivity and foreign exchange reserves. Drawing inspiration from Turkey’s emphasis on reducing public spending and Indonesia’s focus on supply chain efficiency, Nigeria can implement targeted measures to address inflation drivers and stabilise the economy. Additionally, fostering local production and encouraging exports will reduce external dependencies, creating a more balanced economic structure. Moreover, ensuring effective institutional frameworks will be critical to sustaining these efforts, enabling long-term economic progress and stability.
While implementing these changes, the government must also prioritise social welfare. Policies to shield Vulnerable Populations from inflationary pressures, such as Subsidies on essential goods or income support programmes, will mitigate the adverse effects of economic adjustments. Nigeria’s success in managing inflation will hinge not just on policy shifts but also on the capacity to balance growth with social equity. Addressing Unemployment and fostering an enabling environment for small and medium enterprises will further solidify the nation’s economic base.
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Milton Friedman, a renowned American economist, attributed inflation to monetary factors. Therefore, Inflation can erode citizens’ purchasing power and economic security, disproportionately affecting vulnerable populations and exacerbating inequality and social instability. For Nigeria, addressing inflation requires decisive action, learning from global successes while tailoring solutions to local challenges. By implementing reforms to tackle inflation’s root causes, fostering transformative investments, and strengthening institutions, Nigeria can rebuild economic resilience and stabilize its economy, paving the way for sustained growth.