For quite sometimes now, Nigeria, the economic powerhouse of Africa, has been grappling with some challenges, which include unemployment, low capital, poverty, inflation and insecurity, in some parts of the country. But, inflation, so far, has been the most formidable of these. Today, it is a challenge that threatens the country’s stability and growth – inflation coupled with a foreign exchange crisis. These twin crises have far-reaching implications for the country’s economy, its citizens, and the broader regional landscape. Addressing these issues demands a multifaceted approach, grounded in sound economic principles and political will by President Bola Ahmed Tinubu and his team. There is need to look the free market principles now if Nigeria must survive inflation woes.
With a gap of over 6percent between core inflation and headline inflation, inflation in Nigeria is no longer creeping. It is walking! With the removal of fuel subsidy by President Tinubu on May 29, 2023 when he took over power, prices of basic commodities have soared to alarming levels, especially in the last one year, seriously eroding the purchasing power of the citizens and putting pressure on household budgets. Worryingly, it seems the Central Bank of Nigeria (CBN) under Dr Yemi Cardoso is not working hard enough to ensure stability in the economy, on the two legs of the term-price stability and foreign exchange stability.
The root causes of this inflationary surge are multifaceted, though subsidy removal is the major catalyst. Others include supply chain disruptions, fiscal mismanagement, and external shocks such as the Russia-Ukrainian War. The unchecked printing of money by the Federal Government, under former President, Muhammadu Buhari, to finance its expenditure has further exacerbated the situation, fueling inflationary pressures.
The consequences of runaway inflation are dire. It diminishes the value of savings, discourages investment, and undermines consumer confidence. Moreover, it disproportionately affects the most vulnerable segments of society, pushing more people into poverty and exacerbating social inequalities.
While inflation rages on, Nigeria faces a foreign exchange crisis, simultaneously. The transition to floating exchange rate seems to have created more problems than when the country was in fixed exchange rate regime, characterized by a widening depreciation of the Naira. This reflects underlying weaknesses in the country’s external sector, including declining oil revenues, limited export diversification, and persistent capital flight. As a result, businesses struggle to access foreign currency for essential imports, hindering productivity and stalling economic growth.
The scarcity of foreign exchange not only hampers business operations but also undermines investor confidence and deters foreign direct investment. It creates uncertainty in the market, leading to speculative activities and further depreciation of the local currency. To address this crisis, government must pursue policies aimed at bolstering its foreign reserves, promoting export-led growth, and enhancing investor confidence through transparency and stability.
Telescope Magazine believes that resolving Nigeria’s inflation and foreign exchange crises necessitates bold and decisive action on multiple fronts. The government must prioritize fiscal discipline, curtail excessive borrowing from the Central Bank of Nigeria through money printing, and pursue structural reforms to enhance the efficiency of the economy. Additionally, there is a pressing need for greater transparency and accountability in the management of public finances to rebuild trust and confidence among investors and citizens alike.
Furthermore, President Tinubu must pursue a diversified economic strategy that reduces the country’s reliance on oil exports and fosters the development of non-oil sectors such as agriculture, manufacturing, technology and support for activities that can support youth employment. This diversification will not only enhance resilience against external shocks but also bring in more foreign exchange, and create new opportunities for growth and employment.
In conclusion, Nigeria stands at a critical juncture, grappling with the formidable challenges of inflation and a foreign exchange crisis. Addressing these issues requires a concerted effort from policymakers, businesses, and citizens alike. By embracing prudent economic measures, fostering innovation, and promoting inclusive growth, Nigeria can navigate through these turbulent waters and emerge stronger and more resilient in the global arena.
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