The International Monetary Fund (IMF) has urged the Federal Government to provide targeted cash transfers and temporary income support for vulnerable households across the country to cushion the impact of high living costs, reduce poverty and improve food security.
The Fund said the measures should be accompanied by improved public expenditure quality and stronger revenue collection to help the Federal Government achieve fiscal consolidation and put public debt on a sustainable downward path without worsening the hardship faced by ordinary Nigerians.
Chief of the IMF Research Department’s World Economic Studies Division, Deniz Igan, stated this during a press briefing on the Fund’s World Economic Outlook at the ongoing IMF/World Bank Annual Meetings in Thailand.
Igan said that despite Nigeria’s economic growth and status as an energy exporter, the cost of living remained high, leaving many Nigerians struggling to meet their basic needs.
“Although economic growth has held up in Nigeria, given that it is an energy exporter, living costs are still very high, and we are very mindful that the population is suffering,” she said.
She noted that the pressures were particularly severe because of the rising cost of essential goods, especially food and energy, which account for a significant proportion of household consumption.
“In our chapter on fiscal policy, we also examine the pressures countries are facing from the rising cost of living, particularly increases in the prices of essential goods, which account for a significant proportion of the consumption basket,” Igan said.
Against this backdrop, she said the IMF was advocating targeted and temporary support for the most vulnerable households to cushion the impact of rising prices.
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“In this environment, we advocate cash transfers and targeted, temporary income support for the most vulnerable households in Nigeria,” she said.
According to her, the intervention would help address the immediate effects of economic hardship on poor households.
“Such transfers can help reduce poverty and improve food security,” she said.
However, Igan stressed that social protection measures must be accompanied by fiscal reforms to ensure that governments can sustainably finance public spending and gradually reduce their debt burden.
“This should be accompanied by a credible medium-term fiscal framework. That framework should focus on improving the quality of public expenditure and strengthening revenue collection,” she said.
Responding to the broader policy challenge, specifically how fiscal and monetary policies could be better positioned to ensure that the burden of economic stabilisation did not fall disproportionately on ordinary citizens while preserving price stability and investor confidence, Igan explained that monetary authorities must also balance the need to control inflation against the effects of policy measures on economic activity, particularly when economies face supply-side shocks.
On how central banks should respond to an oil price shock that pushes up inflation without a corresponding increase in demand, she said, “This is a classic case of a policy trade-off. Inflation is high, but economic activity is being constrained or reduced by the shock. This is where the central bank needs to manage the trade-off.”
She explained that such a situation differs from one in which inflation is driven by strong demand, requiring policymakers to consider the underlying causes of price increases before deciding on the appropriate response.
“This is a different situation from what we see in economies experiencing a demand-driven shock,” she said.
According to Igan, central banks must nevertheless maintain their focus on price stability and ensure that inflation returns to target within the policy horizon.
“It must ensure that inflation returns to target within the policy horizon, which we typically consider to be two to three years,” she said.
She added that monetary policy should remain sufficiently restrictive to bring inflation back to target, while policymakers take account of the implications for economic activity.
“In such circumstances, the central bank must continue to focus on price stability and ensure that its monetary policy stance remains sufficiently restrictive to bring inflation back to target, while also taking account of the effects on economic activity,” Igan said.
She noted that the appropriate policy response would depend on the nature of the shock and the circumstances of each economy, including labour-market conditions, the initial level of inflation and the economy’s exposure to the shock.
For Nigeria, the IMF’s recommendations underscore the need to combine measures to restore fiscal sustainability and maintain price stability with targeted interventions to protect vulnerable households from rising living costs.
The approach, as outlined by Igan, would require improved public spending efficiency, stronger revenue mobilisation and temporary income support for households most affected by economic pressures.
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