Forex Scarcity To Push Nigeria’s Inflation Rate To 20.4%, Says Rewane
The Chief Executive Officer of Financial Derivatives Company Ltd, Mr Bismarck Rewane has said that Nigeria’s inflation rate may hit 20.4 per cent.
Rewane said this while reviewing Nigeria’s economic outlook on TVC on Tuesday.
He also said that it is ‘cheap’ for the Nigerian government to continuously speak on economic diversification, but the political will to take the right step is the biggest challenge.
Rewane made the comments considering current economic reality which has placed the naira at N700 per dollar on the black market and inflation at a 17-year high of 19.9 per cent.
Crude oil earnings which is a major source of foreign exchange revenue for the Nigerian government has been performing at low levels.
The country is losing around 700,000 barrels per day, which translates to a loss of $70m at $100 per barrel, according to the Nigerian National Petroleum Company Ltd Group Chief Executive Officer, Mele Kyari.
The Federal Government had moved to diversify the country’s economy with agriculture being the anchor of the policy.
The Economist said, “We must differentiate between what we want to do and how we want to go about it. If what we want to do is achieve diversification, how do we go about it? First of all, you must understand that talk is cheap. People just talk. Secondly, action is difficult and thirdly, there are lags between what we call the outside lag. The lag between when you take a decision and when you feel the impact. The inside lag is the difference when you hear of something and how you react.
“Diversification calls for a laser focused approach of implementation not haphazardly. They need to deal with the exchange rate and the way to deal with the exchange rate is simple. You will allow the Investors and Exporters Window, the official rate to depreciate. And anytime it depreciates, the autonomous rate (black market rate) reduces.
“The rate will begin to accelerate towards convergence. Reduce the exchange rate and the price of diesel will decline, all other things will follow and then diversification will become a natural consequence of a forward-looking policy environment.
“We must press the reset button. We must reflect and deal with the scarce product in this country which is honesty and sincerity. People just live in a fool’s paradise and begin to believe their own lies rather than the reality, rather than evidence based that we must take steps. I have outlined some of them, specifically, you are going to allow the exchange rate to begin to move towards its fair value.
“Anytime you hold it down, you are creating opportunities for people to arbitrage, for people to divert funds.”
According to him, the foreign exchange disparity is luring Nigerians to smuggle outputs like fertilizer made for Nigerian farmers to neighboring countries.
Rewane said, “The exchange rate itself is a function of so many things. The price of oil, the production of the revenue from oil and also our payment system.
“Inflation on Thursday we are going to find the numbers come out. Our projection from our analysis is that it will grow up to 20.4 per cent. We are using a narrow basket of Lagos State alone.
“Technically speaking, if products were stranded in the markets, you will see that the prices of these products will decline sharply, while the markets that are starved of the commodities will have high prices.
“I think that there is also export smuggling. Exports are struggling because the exchange rate is very attractive. If you can get in of course. By this time last year, the price of a bag of fertilizer was N5,000. Today, it is N17,500 per bag.”