The recent projection by a member of the Presidential Eonomic Adisory Council (PEAC) and Chief Executive Officer, Financial Derivatives Company (FDC) Limited, Bismarck Rewane, to thw effect that Nigerya’s economy has 25 per cent probability of slipping into stagflation in 2020 is indeed worrisome and scary. The situation calla for urgent measures forestall the loomimg danger. Stagflation is an economic situation in which prices keep rising but economic activity does not increase.
Rewane who made this statement in Lagos at LBS breakfast session said that the economy is experiencing slowing growth, rising in prices of goods accompanied by high unemployment and failing investment.
Giving more explanation on how stagflation could happen, he said there is pressure on price level due to federal and state government minimum wage consequential costs of N600 billion, arrears of minimum wage from April to November N700 billion and inflation impact of 1.5 per cent.
He said that terms of trade deteriorating now at 27.5 per cent while high dependence on ‘hot money’ was 73 per cent of volatile capital importation. Rewane who spoke on “The spectre of stagflation” said closure of nation’s border in addition to food import restrictions hiking food inflation. Mathematically, he explained that food inflation plus imported inflation and wage inflation would be equal higher inflation.
Meanwhile, the recent market surveyed showed that closure of the nation’s borders with the neighbouring countries has impacted negatively on the prices of food items, especially rice and frozen foods. The survey showed that the prices of frozen food, especially, carton of chicken lap and both local and foreign rice have gone up in the market.
Specifically, a bag of local rice selling at the rate N17,000 as at the time federal government shut the border is now N21,000 while foreign rice which was N21,000 has become very scarce and more expensive rising between N25, 000 and N27,000
The survey also revealed that one carton of frozen chicken lap which sold at N9500 before the closure of nation boarder has skyrocked to N15,000. Foodstuff dealers were of the view that the way things are going the prices of local rice and frozen food may worsen before the end of this month
It could be recalled that the federal government had in August closed the nation’s borders with neighbouring countries as part of measures to check mate cases of snuggling in the country.
Rewane’s projection is coming on the heels of a warning by the Monetary Policy Committee of the Central Bank of Nigeria that weak economic fundamentals currently being shown by the Nigerian economy are putting the country’s exit from recession under threat. Nigeria’s economy exited recession in 2017 after suffering contraction for five consecutive quarters,
Addressing journalists shortly after the end of the two-day meeting of MPC members held at the headquarters of the apex bank, the CBN Governor, Mr Godwin Emefiele, said the economy has started showing signs of weakness.
For instance, he said the committee was concerned that the exit from recession may be under threat as the economy recorded growth rate of 1.95 per cent and 1.5 per cent during the first and the second quarter of this year respectively.
He noted that the slowdown emanated from the oil sector with strong linkages to employment and growth.
The apex bank boss said the late implementation of the 2018 budget, weakening demand and consumer spending, rising contractor debt, and low minimum wage are some of the risks to output growth.
Others, according to him, are the impact of flooding on agricultural output, continued security challenges in the North-east and North-central zones and growing level of debt.
He said, “The MPC observed that despite the underperformance of key monetary aggregates, headline inflation inched up to 11.23 per cent in 2018 from 11.14 per cent in July 2018.
“The near time upside risks to inflation remain the dissipation of the base effect expected from 2019 election-related spending, continued herdsmen attacks on farmers and episode of flooding which destroyed farmlands and affected food supply ultimately.
“Relative stability has returned to the foreign exchange market buoyed by the robust external reserves with inflation trending downward for the 18th consecutive month.
It is evident that owing to the probable relapse of the nation’s economy into recession and the need to halt the slide President Muhammadu Buhari recently inaugurated the Presidential Economic Advisory Council (PEAC), and also set an agenda of what they should accomplish in the shortest possible time.
Speaking at a meeting with the eight-member council chaired by Doyin Salami, a professor at the Lagos Business School, President Buhari charged them to focus on developing reliable data that will properly reflect what is happening in the country. The President called the task before the PEAC as the ‘‘most important national assignment.”
We call for a strong collaboration of the Buhari government’s economic team including the PEAC, the CBN, chambers of commerce and other stakeholders in the Nigeria project to think out of the box in order to rescue the nations economy from further cisis. The Nigerian people have had one crisis too many and cannot afford more. This a call to national duty.