26.6 C
New York

Nigeria’s Economy Faces Worse-case Stagflation – Experts

Nigeria’s economy faces worse-case stagflation, according to most economists and financial experts, as macroeconomic indicators continue to deteriorate.

The naira defied expectations that the foreign exchange market would be relatively stable following political party primaries, plummeting to a record low of around N615/$ in the alternative market last week.

Following the recent increase in the benchmark interest rate to 13%, commercial lenders have also adjusted loan pricing. Lenders have passed on the increase in deposits to borrowers, increasing the cost of borrowing.

In an unusual turn of events, the interest rate hike had an immediate impact on the financial market. According to data provided by the Central Bank of Nigeria, a six-month deposit rate increased by approximately 14% in May to 5.68%. (CBN). Other time deposits and savings saw a similar rise.

Borrowing costs had risen in advance of the monetary policy rate (MPR) increase. Lenders had begun to include the sudden sharp increase in the cost of diesel in the cost of loans. For example, the maximum lending rate increased by more than 100 basis points in April, rising from 26.61 percent in March to 27.79 percent.

With marketers warned of a further increase in the retail price of diesel amid rising uncertainty, political risk, and fear of global recession, Dr. Aminu Gwadabe, President of the Association of Bureaux De Change Operators of Nigeria (ABCON), has warned that Nigerians, whose real incomes have been harmed by rising inflation and naira depreciation, are yet to face the worst of hardship.

Gwadabe said in a position statement released to the media over the weekend that declining production and continued naira depreciation raise the risk of stagflation to a frightening level. He claimed that the masses would suffer as a result of this.

With the World Bank downgrading global growth to 2.9 percent, significantly lower than the International Monetary Fund’s (IMF) forecast of 4.1 percent in January, Gwadabe believes Nigeria has limited fiscal space to navigate the potential crisis ahead.

He stated that the naira, even at N614/$, is battling massive FX demand, indicating that the economy is still far from achieving currency market stability.

The challenges, according to the ABCON CEO, are eroding household purchasing power.

“The most persistent driver of inflation is the persistent rise in food inflation.” The average price level of the food basket increased by 1.13 percent in May to 19.5%, up from 18.37 percent in April. This can be reversed by increased agricultural support and government policies that benefit the sector,” he said.

To keep the economy afloat in the face of current challenges, Gwadabe advocated for increased local production and aggressive growth of non-oil revenue sources to mitigate the risk of crude concentration. He stated that Nigeria’s large population and diaspora market could be explored to increase dollar inflows and save the economy.

According to him, increasing the number of dollar receipt points to 5,000 through 5,000 bureaus de change (BDC) operators could help to deepen dollar inflows and significantly improve the country’s foreign exchange position.

Gwadabe contended that BDC continues to be one of the channels through which diaspora remittance funds are received and administered around the world and that Nigeria cannot be an exception.

He claimed that the BDCs are at the heart of the country’s economic development and can attract needed capital to grow the economy while deepening the FX market.

READ MORE: Cyberattack Forces Shutdown Of Iran Steel Company

“Making BDCs one of the channels through which over $20 billion in annual diaspora remittances enter the economy will give the FX market depth and boost BDC operations.” Nigerian BDCs have also recognized the enormous opportunities presented by diaspora remittances and want to play a larger role in attracting more foreign capital into the economy. “Remittances are known to help poor recipients meet basic needs,” Gwadabe explained.

He also stated that the CBN’s Race to $200 billion in FX Repatriation (RT200 FX Programme) would increase FX inflows if properly implemented. He described it as a solution for achieving stable and sustainable FX inflows, but he urged strict adherence to the scheme.

Gwadabe urged the CBN to liberalize the foreign exchange market and focus more on supply side policies.

Africans running impact-driven businesses aimed at addressing key African challenges have received a boost after the announcement of a scale-up funding opportunity at the Africa Social Impact Summit (ASIS) on July 14 in Abuja.

The platform, which will allow 10 finalists to pitch their solutions to a select group of Africa-focused investors, is in line with the summit’s goal of capturing ideas and solutions capable of accelerating Africa’s growth.

A summit is a two-day event that brings together players from Africa’s civil society, private sector, and government to share ideas, lessons learned plans and practical solutions for meeting the SDGs (SDGs).

The summit aims to provide opportunities for impact investors to scale market-led solutions with the potential for long-term impact, with a focus on climate action, education, health, agriculture, circular economy, and women empowerment.

Breaking down the deal room sessions, Etemore Glover, Projects Lead for the implementing partners, Impact Investors Foundation, explained that the opportunity is targeted at businesses that have demonstrated the ability to effectively address some of the continent’s challenges in a way that benefits everyone.

Olapeju Ibekwe, CEO of the Sterling One Foundation, the summit’s host organization, stated that one of the summit’s key anticipated outcomes is a better framework for sustainable financing and that the deal room is a snapshot of how the framework will function.

JOIN OUR NEWSLETTER

- Advertisement -

Our newsletter gives you access to a curated selection of the most important stories daily.

- Advertisement -

Must Read

Uchara Faith
Faith is a valiant writer who has an undisputed passion for writing. She has worked with many highly reputable companies as content creator, radio presenter. She has a book to her name titled ECHO OF A DISTRESSED HEART. She's goal driven oriented person.

Nigeria’s economy faces worse-case stagflation, according to most economists and financial experts, as macroeconomic indicators continue to deteriorate.

The naira defied expectations that the foreign exchange market would be relatively stable following political party primaries, plummeting to a record low of around N615/$ in the alternative market last week.

Following the recent increase in the benchmark interest rate to 13%, commercial lenders have also adjusted loan pricing. Lenders have passed on the increase in deposits to borrowers, increasing the cost of borrowing.

In an unusual turn of events, the interest rate hike had an immediate impact on the financial market. According to data provided by the Central Bank of Nigeria, a six-month deposit rate increased by approximately 14% in May to 5.68%. (CBN). Other time deposits and savings saw a similar rise.

Borrowing costs had risen in advance of the monetary policy rate (MPR) increase. Lenders had begun to include the sudden sharp increase in the cost of diesel in the cost of loans. For example, the maximum lending rate increased by more than 100 basis points in April, rising from 26.61 percent in March to 27.79 percent.

With marketers warned of a further increase in the retail price of diesel amid rising uncertainty, political risk, and fear of global recession, Dr. Aminu Gwadabe, President of the Association of Bureaux De Change Operators of Nigeria (ABCON), has warned that Nigerians, whose real incomes have been harmed by rising inflation and naira depreciation, are yet to face the worst of hardship.

Gwadabe said in a position statement released to the media over the weekend that declining production and continued naira depreciation raise the risk of stagflation to a frightening level. He claimed that the masses would suffer as a result of this.

With the World Bank downgrading global growth to 2.9 percent, significantly lower than the International Monetary Fund’s (IMF) forecast of 4.1 percent in January, Gwadabe believes Nigeria has limited fiscal space to navigate the potential crisis ahead.

He stated that the naira, even at N614/$, is battling massive FX demand, indicating that the economy is still far from achieving currency market stability.

The challenges, according to the ABCON CEO, are eroding household purchasing power.

“The most persistent driver of inflation is the persistent rise in food inflation.” The average price level of the food basket increased by 1.13 percent in May to 19.5%, up from 18.37 percent in April. This can be reversed by increased agricultural support and government policies that benefit the sector,” he said.

To keep the economy afloat in the face of current challenges, Gwadabe advocated for increased local production and aggressive growth of non-oil revenue sources to mitigate the risk of crude concentration. He stated that Nigeria’s large population and diaspora market could be explored to increase dollar inflows and save the economy.

According to him, increasing the number of dollar receipt points to 5,000 through 5,000 bureaus de change (BDC) operators could help to deepen dollar inflows and significantly improve the country’s foreign exchange position.

Gwadabe contended that BDC continues to be one of the channels through which diaspora remittance funds are received and administered around the world and that Nigeria cannot be an exception.

He claimed that the BDCs are at the heart of the country’s economic development and can attract needed capital to grow the economy while deepening the FX market.

READ MORE: Cyberattack Forces Shutdown Of Iran Steel Company

“Making BDCs one of the channels through which over $20 billion in annual diaspora remittances enter the economy will give the FX market depth and boost BDC operations.” Nigerian BDCs have also recognized the enormous opportunities presented by diaspora remittances and want to play a larger role in attracting more foreign capital into the economy. “Remittances are known to help poor recipients meet basic needs,” Gwadabe explained.

He also stated that the CBN’s Race to $200 billion in FX Repatriation (RT200 FX Programme) would increase FX inflows if properly implemented. He described it as a solution for achieving stable and sustainable FX inflows, but he urged strict adherence to the scheme.

Gwadabe urged the CBN to liberalize the foreign exchange market and focus more on supply side policies.

Africans running impact-driven businesses aimed at addressing key African challenges have received a boost after the announcement of a scale-up funding opportunity at the Africa Social Impact Summit (ASIS) on July 14 in Abuja.

The platform, which will allow 10 finalists to pitch their solutions to a select group of Africa-focused investors, is in line with the summit’s goal of capturing ideas and solutions capable of accelerating Africa’s growth.

A summit is a two-day event that brings together players from Africa’s civil society, private sector, and government to share ideas, lessons learned plans and practical solutions for meeting the SDGs (SDGs).

The summit aims to provide opportunities for impact investors to scale market-led solutions with the potential for long-term impact, with a focus on climate action, education, health, agriculture, circular economy, and women empowerment.

Breaking down the deal room sessions, Etemore Glover, Projects Lead for the implementing partners, Impact Investors Foundation, explained that the opportunity is targeted at businesses that have demonstrated the ability to effectively address some of the continent’s challenges in a way that benefits everyone.

Olapeju Ibekwe, CEO of the Sterling One Foundation, the summit’s host organization, stated that one of the summit’s key anticipated outcomes is a better framework for sustainable financing and that the deal room is a snapshot of how the framework will function.

JOIN OUR NEWSLETTER

Our newsletter gives you access to a curated selection of the most important stories daily.

Specially For You

- Advertisement -

Recommended

- Advertisement -
- Advertisement -