IMF Urges Fiscal Discipline to Bolster CBN’s Inflation Fight and Support Naira Stability
The International Monetary Fund (IMF) has endorsed the Central Bank of Nigeria’s (CBN) stringent monetary policy, stating that tighter fiscal alignment is essential to sustain gains in taming inflation and stabilising the naira. In its 2025 Article IV report, the IMF acknowledged the CBN’s monetary tightening, which included an 875 basis point hike in interest rates and measures such as raising the cash reserve ratio and intensifying open market operations. These efforts, the Fund said, were pivotal in restoring exchange rate stability and attracting foreign capital inflows.
Despite these gains, inflation remains high at 22.9% as of May 2025, and the IMF forecasts it to end the year at 23%. The Fund stressed that Nigeria’s progress remains fragile and warned that without stronger fiscal support, the fight against inflation could falter. It advocated for a clearly defined disinflation path, a formal transition to inflation targeting, and enhanced transparency in monetary policy to build investor and public confidence.
The IMF expressed concern over Nigeria’s low credit-to-GDP ratio and data limitations, which weaken the transmission of monetary policy. It emphasised that a neutral fiscal stance—particularly in the face of budgetary stress from reduced oil revenues and lingering fuel subsidies—is crucial to avoid undermining monetary efforts. It specifically called on the Nigerian government to recover N700 billion in outstanding fuel subsidy funds from the Nigerian National Petroleum Company (NNPC).
On foreign exchange management, the IMF commended the CBN’s shift to a more flexible exchange rate system and the rollout of market reforms such as the Electronic FX Matching System and FX code. However, it urged for clearer, rules-based intervention strategies. Interventions, the Fund noted, should address excess volatility rather than defend arbitrary exchange rate levels, and should not replace broader economic adjustments when necessary.
Finally, the IMF cautioned that Nigeria’s vulnerability to global shocks remains high. The exit of $2 billion in portfolio investment in early 2025 underscores the country’s dependence on short-term capital and a still-shallow FX market. The Fund concluded that for Nigeria to consolidate recent gains and achieve long-term stability, fiscal and monetary policies must remain closely coordinated, disciplined, and transparent.
Source: Business day