James Emejo in Abuja
Analysts have warned that the current economic difficulties in Nigeria could deteriorate should the Russian-Ukrainian war linger.
The Chairman, Chartered Institute of Bankers of Nigeria (CIBN), Abuja Branch, Prof. Uche Uwaleke, said the situation could further widen the government’s fiscal deficit while the stock market would witness negative investors’ sentiments.
Uwaleke, in an interview with THISDAY, said the Central Bank of Nigeria (CBN) is currently hamstrung and could do little to respond to the growing threat of inflation in the country because the problem is largely structural.
He said, “I submit that to tackle inflation, we need to first identify the major drivers. Gladly, the NBS has been publishing CPI data promptly which points to cost-push (as opposed to Demand-Pull) factors.
“If the price pressure is coming from the rising cost of petroleum products (PMS, Aviation fuel, Diesel, Kerosene- no thanks to the Russian Ukrainian conflict), electricity, transport costs from weak infrastructure and food shortages due in part to insecurity and smuggling, the CBN becomes hamstrung and can do little.”
Reacting to the recent hike in the Monetary Policy Rate (MPR) by the Monetary Policy Committee (MPC) of the apex bank, in response to inflationary pressures, the former Imo State Commissioner for Finance said, “The reality is that the traditional monetary tools have reached their limits.
“Therefore, the solution does not lie in tightening monetary policy. Raising rates at a time the economy’s growth is still tepid and the government has mapped out plans to borrow to finance the deficit will only create distortions in the economy.”
He said, “I think the ‘fiscal theory of price level’ which concedes a greater role to the fiscal authorities in taming inflation finds application here. At best, the CBN should continue to improve on its development Finance function especially its interventions in agriculture to ensure increased output given that the major inflation challenge is coming from rising food prices.”
Also analysing the impact of rising prices in the country, Managing Director/Chief Executive, Credent Investment Managers Limited, Mr. Ibrahim Shelleng, said the continuous contractionary policy by CBN was a direct response to global inflationary pressures, adding that central banks globally have all raised interest rates in reaction to the inflationary pressures caused by the Russian-Ukraine crisis.
He said while this could be understood in the context of developed countries wanting to reduce demand-pull inflation caused by supply shocks, “I am not convinced that this same stance will be effective in developing countries where the dynamics are different.”
Shelleng said: “Firstly, in a country like Nigeria with a huge underbanked population, the effects of monetary policy are not as far-reaching and therefore the impact on the economy tends to be minimal.
“Secondly, given Nigeria’s stagflation (low growth, high inflation, high unemployment) the changes in MPR have had little effect in curtailing the situation, albeit with blame also lying on the fiscal side.”
