John Omachonu
Nigeria is currently in dire straits and would require synergy between the fiscal and monetary policy measures, combined with good leadership to bring the desired goal of making life meaningful for the citizens.
Most analysts believe that the economic outlook, occasioned by spike in inflation, high level of poverty, among others, looks bleak and signals imminent harder times typified by possible recession, closure of more companies, further depreciation of naira, displacements of material and human resources as well as extreme hunger.
But, from all indications, there is need for the economic managers to up the ante as more Nigerians are falling below the poverty level on daily basis, basically due to rising cost of goods and services as well as the fast depreciation of the naira.
Specifically, most analysts agree that the Russian-Ukraine war and threats of resurgence of new variants of Covid-19 and the recent IMF slashing of 2022 global GDP growth forecast to 3.2 percent could be seen as pointers to the inevitability of recession, but, what is common to most Nigerians now is the inflationary pressures, occasioned majorly by insecurity and heightened socio-political tension in the country.
Specifically, the country is battling multiple socioeconomic shocks – insecurity, energy supply crunch, poverty, climate change, inflation, and exchange rate volatility.
Recently, the naira began a free fall that made it exceed the N700/$ psychological line, before appreciating to N650/$ and later depreciating to N680/$.
Some Nigerians are tempted to even say the naira is jinxed and expect a sharp plunge in value to N1000/$ soon.
Sadly, this fall could even be greater as the continued practice of the multiple exchange rate system that is highly distortionary persists.
This has continued to will fuel the fire of arbitrage, speculative activities, and heightened inflationary surge.
The exchange rate weakness at this time appears to be more potent than other causative factors. It has had a 76% impact on the price level compared to diesel (11.6%).
Nigerian inflation is increasing despite declining global food price index and prices of oil at the international market.
Some Nigerians believe that the country is in dire straits and are asking themselves as to how we got to this point on the economic decay curve.
Consequently, questions on the lips of most Nigerians now are: What is the nature of inflation inflicting Nigeria, is the country not heading for recession, when will the naira stabilize and most importantly, when will the poor masses experience affordable goods and services, particularly, food items?
For instance, Bismarck Rewane, chief executive officer of the Financial Derivatives Company (FDC) believes that president Muhammadu Buhari’s leadership style has resulted in poorest economic outcomes for the country.
Rewane, a member of the president’s Economic Advisory Council made the evaluation in the presentation at the latest LBS Breakfast communiqué, based on his assessment on the average Gross Domestic Product (GDP) growth rate, exchange rate, external reserves, inflation and public debts, among others.
Similarly, the foremost economist had recently described the decision by the Central Bank of Nigeria, (CBN) Governor, Godwin Emefiele to clamp down on people who exchanged naira to dollar for electioneering purposes as primitive economics.
He was responding to foreign exchange scarcity linked to devaluation of the naira to as low as N720/$, by July ending. However, CBN had made clarification on the statement.
But, the scourge ravaging consumers, now is inflation, which is a general increase in prices of goods and services in an economy.
When the general price level rises, each unit of currency buys fewer goods and services.
Consequently, inflation corresponds to a reduction in the purchasing power of money.
Although inflation is currently a global phenomenon as it is at 40-year highs in advanced economies like the US (8.5%) and the UK (9.4%), Nigeria’s experience since the beginning of the year is however worrisome, climbing month on month and indicative of a closer to recession.
In January, it peaked at 15.60 percent, shot up to 15.70 percent in February and by March; it had climbed to 15.92 percent.
The month of April experienced the same trajectory rising to 16.82 percent, then to 17.71 percent in May and 18.60 percent in June, making it the eighth highest on the African continent
Analysts are predicting a 19-year high of 19.7 in July by next week when the country’s statistics Bureau, (NBS) is expected to release the figures.
Also, Rewane predicted that Nigeria’s headline inflation for July 2022 will rise to 19.25 per cent from 18.60 per cent recorded in June.
He noted that if the prediction comes true, it would be the 6th consecutive monthly increase in the inflation rate.
He also stated that “published data may be inaccurate” as there is no consensus about the actual level of inflation in the country and “actual price is much higher.”
The foremost economist believes that the troubled outlook has continued to elicit some questions by analysts whether the country is experiencing spiral, hyperinflation, runaway or the natural one.
The implication is that current happening may have defied all logical reasoning, permutations and theories as the living conditions of consumers continue to get worse on daily basis.
Under spiral hyperinflation, the prices of goods and services rise uncontrollably over a defined period of time. In general, the term is used when the rate of inflation increases at more than 50% a month.
Typically, hyperinflation is triggered by a very quick growth in the money supply.
While runaway inflation on the other hand exists where there is rapid decrease of the value of money, consistent raising of prices, spiraling inflation on the other hand exists in a continuous rise in prices that is sustained by the tendency of wage increases and cost increases to react on each other.
It means a situation in which wage and price increases drive each other upward and cause inflation.
Some analysts say the current inflationary pressures seem likely different from the natural one where there is general rise in price level occasioned by too much money chasing few goods.
Amid public outcry against the integrity of data being chunned out monthly by NBS, Nigerians would want federal government and its agencies like the CBN, FMoF and other related bodies to educate is the kind of economy Nigeria is practicing and where it is headed.
They argue that the situation where the velocity of money is skewed in favour of some individuals and corporate organisations at the expense of other sectors like education, human capital development with the attendant impoverishment and extinction of the Middle close could be a time bomb that could explode anytime.
Nigerians demand to know a situation where CBN’s credit to the Federal Government, through ways and means is on the increase almost at N20 trillion and still counting and rising debts, among other frightening economic indicators, are taking the country to.