Nigeria’s inflation rate may rise again and further dent its economic recovery
A sharp rebound in economic activity strengthened Nigeria’s gross domestic product (GDP) growth in the third quarter of the year, but rising inflation could disrupt the recovery, according to a report by Financial Derivatives Company Limited (FDC).
In its presentation, analysts at FDC revealed that Nigeria’s inflation rate would rise further in the first quarter of 2022 due to the exchange rate pass-through effect, high liquidity, higher energy cost, insecurity in parts of the country, the postponement of fuel subsidy removal, among others.
The analysts further predicted that the value of the naira would depreciate in the foreign exchange market in the near term due to excess liquidity.
According to the firm’s analysts, the inflation rate is projected to rise to 15.86 per cent in January and maintain the momentum in February. The firm explained that many companies across the spectrum have hiked the prices of their products due to prolonged disruption in global supply chains.
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Furthermore, FDC expects depletion in the external reserves from an average of $39 billion recorded as of February 3 to just $3 billion by the end of the year.
“The emergence of the Omicron virus and travel restrictions imposed on Nigeria would negatively impact foreign inflows and external reserves accretion, which would limit the ability of the Central Bank of Nigeria to intervene at the foreign exchange market,” The Punch reported.
It added that, “forex scarcity will exacerbate demand pressures at the foreign exchange market and filter into higher import costs, stoking inflation”.
Recently, the IMF had predicted that Nigeria’s debt service-to-revenue ratio would rise to 92 per cent in 2022 from 76 per cent in 2021. According to financial experts, such a percentage would plunge the country into huge debts, deepen the poverty rate and worsen the infrastructural deficit.
Simply put, rising inflation arising from global supply chain disruptions and fresh restrictions due to the new Omicron variant of coronavirus seem to be the biggest hurdle in the path of swift economic recovery. However, economists remain upbeat about 2022, adding that demand for crude oil will rise again as Covid-19 fades further.
