By Abdullahi Muhammad Sheka
“Nigeria’s inflation rate has risen to its highest level in two decades, 26.72%, according to the national statistics bureau. The latest figure keeps millions of people in Africa’s largest country struggling to cope with economic challenges that, analysts say, are exacerbated by government reform policies.”
Hon. Zaharaddeen Babba Mazoji revealed this during a chat with a media team who paid him a visit recently.
Mazoji said, Nigerian President Bola Tinubu embarked on bold policy reforms since entering office in May, scrapping the expensive fuel subsidy payments — a package that ensured fuel was kept within affordable limits at pumps. The president, soon after that, floated the national tender — the naira — against other global currencies, causing it to lose more than half its value.
The reforms hurt the economy, triggering criticism of the government. This month, a Nigerian workers union shelved plans to embark on a nationwide strike to protest the government policies after a meeting with authorities.
Mazoji said pressures will continue to mount on government policymakers and consumers alike.
He emphasise that the three kinds of pressures — social, political and economic pressures on the government,” Our hope is that this does not boil over into something very catastrophic, because there’s also this illusion that Nigerians will just accept these realities. That may not be the case.”
Mazoji asked the Central Bank of Nigeria (CBN) to urgently put in place a policy to check further devaluation of the naira to the United States dollar and other international legal tenders. He decried that while the Nigerian currency is losing value, others in Africa are gaining.
According to him, the value of Naira relative to the dollar has declined by 9 per cent in the last six months, respectively.
He also recalled that CBN adopted multiple exchange rates in 2020, in a bid to avoid an outright devaluation. He noted that the official rate used as a basis for budget preparation and other official transactions differs from a closely controlled exchange rate for investors and exporters known as the Nigerian Autonomous Foreign Exchange Rate Fixing Methodology (NAFEX).
He stressed that the naira has traded in a tight range between N1000 and N1010, while the NAFEX rate is different from the parallel market.
Mazoji expressed serious concerned that devaluation is likely to cause inflation because imports will be more expensive – any imported goods or raw material will increase in price; aggregate demand increases, causing demand-pull inflation. Firms and exporters have less incentive to cut costs because they can rely on the devaluation to improve competitiveness.
“We are very much concerned that devaluation of the naira makes it more difficult for Nigerian youths especially in the IT sector, whose businesses are online and must necessarily transact businesses in the US dollars.”
He added that an enormous and rapid devaluation may scare off international investors. It makes investors less willing to hold government debt because the depreciation effectively reduces the actual value of their holdings. In some cases, rapid devaluation can trigger capital flight, said Mazoji.