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IMF says new minimum wage, VAT increase will trigger inflation rise in Nigeria in 2020

Kristalina Georgieva

The International Monetary Fund (IMF) has raised concerns about the proposed increase in Value Added Tax (VAT), of which the proposed 2020 budget was partly predicated on. The body said the proposed increase in VAT and rising minimum wage will cause Nigeria’s inflation to rise in 2020.

This was the conclusion of an IMF staff team led by Amine Mati, Senior Resident Representative and Mission Chief for Nigeria, that visited Lagos and Abuja between September 25 and October 7, 2019, to discuss recent economic and financial developments, update macroeconomic projections, and review reform implementation.

“Inflation will likely pick up in 2020 following rising minimum wages and a higher VAT rate, despite a tight monetary policy.”

The organisation also pointed out that the Central Bank of Nigeria (CBN) may need to assess new regulations to reflect expected realities in the banking sector.

“Banking sector prudential ratios are improving. However, new regulations to spur lending—which has recently increased—should be carefully assessed and may need to be revisited in view of the potential unintended consequences on banks’ asset quality, maturity structure, prudential buffers and the inflation target. Continued strengthening of banks’ capital buffers would enhance banking sector resilience.”

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