Businesses and consumers in Nigeria have been hard hit by spiraling inflation, which peaked at 34.6 percent, a 28-year high, in November 2024.
The federal government expects inflation rate to cool to 15 percent in 2025, but some economists consider the target ambitious.
Basil Abia, an economist and co-founder of VerivAfrica, said that without effectively addressing key inflation drivers such as high food prices, exchange rates, and excess liquidity, there won’t be sufficient conditions for a substantial decline in inflation.
According to Abia, the 31 percent inflation forecast made by VerivAfrica using the vector autoregressive (VAR) prediction model is likely, noting that it seems more realistic given the nation’s current economic challenges.
Read also: Nigeria needs $50bn FDI to slash inflation to 5% – Ayo Teriba
The elevated inflation raises the prospect that the Central Bank of Nigeria (CBN) will continue its monetary tightening policy, which has seen the benchmark interest rate climb from 18.75 percent at the end of 2023 to 27.5 percent this year. Last month, Olayemi Cardoso, CBN governor, said the Monetary Policy Committee (MPC) expects inflation to start easing in 2025 because of these measures.
Yvonne Mhango, Africa economist at Bloomberg Economics, said that she sees a path to reduced inflation next year.
“After the higher-than-expected rise in Nigeria’s inflation, we now expect price gains to moderate from January – rather than December – at a slow pace. Rate hikes will persist until the Central Bank of Nigeria achieves its goal of restoring positive real rates – likely in the third quarter of 2025. Falling inflation will give scope for policy to become less restrictive in 4Q25.”
Several experts have predicted Nigeria’s inflation rate for 2025 using different prediction models. For instance, the African Development Bank has predicted 20.7 percent while the International Monetary Fund (IMF) predicted 23 percent.
Lessons for Nigeria from Turkey and other Nations
Turkey, the 17th largest economy in the world, has a nominal gross domestic product (GDP) of $1 trillion and a GDP per capita of 11,938 USD. However, this nation of 85 million people faced severe inflation, which hit 86 percent in October 2022 and 53.86 percent in 2023.
Turkey’s high inflation rates were driven by a combination of factors, including geopolitical tensions, supply chain disruptions, high borrowing costs, foreign currency-denominated debt, and President Recep Tayyip Erdogan’s policy of slashing interest rates.
Additionally, the Turkish lira lost 60 percent of its value between September 2021 and May 2024, further exacerbating inflation.
Despite challenging conditions, Turkey successfully reduced inflation by nearly 50 percent, as it dropped from 83 percent in 2022 to 47.1 percent in 2024.
This was accomplished through a series of measures, including tightening monetary policies with interest rates raised from 8.5 percent to 50 percent, boosting productivity, cutting public spending by $3.1 billion, reducing capital expenditure by 10 percent, and lowering investments by 15 percent.
In contrast, Nigeria could benefit from Turkey’s approach of cutting public spending, boosting productivity, reducing capital expenditure, and tightening monetary policies to curb excessive borrowing and uncontrolled spending.
The Argentinan, Indonesian Example
Argentina has faced persistent inflationary challenges, which President Javier Milei pledged to address upon taking office. Inflation soared from single-digit figures in 2004 to over 200 percent in 2023.
Milei’s strategy of cutting government spending to achieve a balanced budget, reducing public debt, and limiting the money supply played a key role in alleviating inflation and stabilising Argentina’s currency.
Indonesia, the world’s fourth most populous country (280 million people), has demonstrated resilience in managing inflation and stabilising its currency, according to the World Bank.
Earlier this year, Airlangga Hartarto, Indonesia’s minister of economic affairs, pointed out that the ongoing Russia-Ukraine conflict had pushed the country’s inflation rate to 5.95 percent.
However, Hartarto assured that measures had been implemented to control inflation, aiming to keep it at 2.5 percent through price regulation, steady supply chains, adequate stock levels, and effective communication.
Read also: How Tinubu plans to lower inflation to 15% in 2025
What’s the way forward?
Nigeria can effectively combat inflation by learning from the strategic approaches of Turkey, Indonesia, and Argentina. By adopting prudent monetary policies, enhancing foreign exchange reserves, diversifying its economy, and strengthening institutional frameworks, Nigeria can stabilise its economy and foster sustainable growth. While each country’s context is unique, the key issue lies in building economic resilience, enhancing transparency, and curbing excessive reliance on imports.
As the renowned economist Milton Friedman once said, “Inflation is taxation without legislation.” Nigeria must act decisively to control inflation, ensuring it doesn’t become a silent tax on its citizens’ livelihoods, experts say.
$50bn FDI can lower inflation to 5%
Ayo Teriba, an economist and CEO of Lagos-based Economic Associates, said the federal government needs to attract foreign direct investment (FDI) of at least $50 billion to rein in inflation to 5 percent in 2025.
Teriba, who featured on a programme on Arise TV Wednesday, said the country’s net reserves need to expand to enable its macroeconomic conditions to moderate.
The economist’s assertion comes against the backdrop of the President Bola Tinubu’s target of lowering inflation to 15 percent next year. Many economists have doubted the feasibility, citing pressures from high food and petrol prices.
Teriba explained that with enough capital inflows, and large foreign reserves, exchange rate would be stabilized, and inflation would lower drastically to single digit.
The economist noted that the government must implement bold reforms aimed at attracting substantial FDI that would be transformative for the economy reeling from multiple woes.
“Five percent inflation is possible next year. Look at what happened in Argentina. Economists don’t prophesy but make conditional statements,” Teriba said.
“If the president can complement the efforts on tax and finance reforms with an investment act to attract $50bn FDI within the next year, exchange rates will stabilise, and inflation will drop to single digits.”
Foreign Direct Investments (FDIs) into Nigeria rose by 248 percent in the third quarter (Q3) of 2024 to $103.82 million, but this still remains too low to engender growth needed to turn around the investment-starved economy.
FDI declined to its lowest on record in the second quarter (Q2) to $29.8 million, up from $119 million in the first three months of the year.
Teriba, however, said that the existing economic policies, particularly those focused on debt servicing, undermine the government’s ability to achieve this target.
He pointed out that borrowing to pay off previous debt is counterproductive and fails to address Nigeria’s underlying economic challenges.
“The interest rates offered to Nigeria by international creditors are among the highest globally, primarily due to the country’s poor credit rating. This makes borrowing inefficient and unsustainable as a long-term strategy,” Teriba said.
Teriba criticised the government’s current borrowing practices, urging a shift toward equity-based financing over debt.
He noted that many countries with economies comparable to Nigeria’s borrow at significantly lower rates because they issue higher-grade debt instruments.
“They said they were not going to borrow, but they have continued to borrow. There are right and wrong ways of borrowing, and efficient and inefficient methods.
“The foremost issue is the quality of the debt instruments you issue. Some countries of similar economic size borrow more heavily than we do but at a third of our rates,” he said.
Read also: Achieving 15% inflation and economic diversification in 2025
He further argued that Nigeria’s continuous reliance on debt to fund fiscal deficits is unsustainable.
“We should not continue to fund deficits year in, year out, with debt. A country with a well-structured balance sheet would prioritise equity over debt.”
Teriba urged the government to implement a robust investment strategy that prioritises structural reforms and incentives to attract foreign capital.
He warned that without such efforts, inflationary pressures would persist, undermining economic stability.
“If we remain on this trajectory of high-interest borrowing and poor credit management, we’ll miss the opportunity to stabilise our economy.
“However, if we adopt bold reforms and attract $50bn FDI, Nigeria can transition to an era of growth and stability,” he said.
Join BusinessDay whatsapp Channel, to stay up to date
Open In Whatsapp
