Ghana and Nigeria, the two biggest economies in West Africa, are facing their worst inflation crises in decades. And there is no easy way out for each of them.

Ghana’s inflation rate rose to a four-month high of 43.1% in July from June’s 42.5%. According to Samuel Kobina Annim, Ghana’s Government Statistician, food prices were the main inflation drivers. The country’s food inflation rose to 55% from 54.2% in June. On the other hand, non-food price growth went from 33.4% to 33.8%.

Nigeria’s headline inflation hit a seven-year high of 22.79% in July. According to data from the National Bureau of Statistics (NBS), food inflation was up by 25.25% year-on-year in June. And after the country removed fuel subsidies, energy costs have more than tripled since May. Also, the decision to subtly devalue the naira in the forex market has made imports more expensive, driving prices higher.

Both countries have deployed similar measures to curb inflation: hike interest rates. But none have recorded success in that regard. Ghana’s central bank hiked interest rates by 50 basis points to 30% in June because it said that price pressures were not easing fast enough, bringing combined increases to 16.5 percentage points since November 2021. In the same vein, the Central Bank of Nigeria raised its benchmark interest rate by 25 basis points to a record-breaking 18.75% in July. This move marked the country’s eighth consecutive rate hike since 2022.

However, these rate hikes have had little to no impact on inflation so far. This is because these countries’ inflation is not primarily driven by excess demand or money supply, but by external factors and supply-side shocks that are beyond the influence of monetary policy. Nigeria, for instance, has struggled to keep food prices low due to problems like insecurity, wastage, and inefficient logistics. Instead, these rate hikes are making them vulnerable to high borrowing costs.

Both economies have already been stretched thin by debt in recent years. Ghana’s public debt increased by a fifth in just four months, driven partly by the inclusion of short-term loans from the central bank to the state. Public debt, which excludes state-owned enterprises’ obligations, rose to 569.3 billion cedis ($49.7 billion) at the end of April, the Bank of Ghana said on its website. The figure was adjusted to include the central bank’s overdraft to the government, which was securitized in December 2022. The country also defaulted on a Eurobond payment earlier this year and is restructuring most of its debt to make it sustainable under a $3 billion International Monetary Fund program.

Nigeria, on the other hand, put itself at risk of reaching its self-imposed debt limit of 40% of gross domestic product by year-end. According to the Debt Management Office, the total amount of loans increased by 17% to N46 trillion  ($99.7 billion) by the end of the year. This raised the debt-to-GDP ratio from 22.5% to 23%. In addition, the government owes N23.7 trillion to the central bank and plans to borrow another N11 trillion by the end of this year. This would double the total debt to N80.7 trillion, or about 40% of GDP. Debt servicing already costs the country 80% of its revenue.

How these countries will pull through is still uncertain. Nigeria and Ghana are stuck between a rock and a hard place, where it will take difficult decisions to revive their economies.

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