Rethink anti-inflation strategies, Afrinvest tells FG, CBN

To address the surging inflation rate in Nigeria, Ike Chioke, managing director, Afrinvest West Africa Limited, says the federal government and the Central Bank of Nigeria (CBN) should rethink their anti-inflation strategies.

On Wednesday, the National Bureau of Statistics (NBS) said inflation surged to 27.33 percent in October, up from 26.72 percent in September.

This is the 10th consecutive rise.

Speaking at the unveiling of the 2023 Nigerian banking sector report titled ‘Getting Nigeria to Work Again!’ on Tuesday, Chioke said the monetary and fiscal authorities have paid more attention to controlling the money supply and selective tax reliefs.

He said: “In our view, an effective strategy for taming the high inflation rate would be one that addresses structural bottlenecks (notably, insecurity and infrastructural gaps), improves ease of doing business, and incentivizes large-scale local production of agriculture and manufactured goods alongside effective liquidity management and proper anchoring of market yields to the Monetary Policy Rate (MPR).”

“In all, we stress that failure to stem the surging inflation tide in the near term would result in a contagion financial sector crisis and by extension, derail other segments of the economy from the growth path, given banks’ pivotal role as an economic bridge between the supply and demand segments of the economy.”

‘NIGERIA’S FISCAL DETERIORATION HAS CONTINUED UNABATED’

Afrinvest, in its Nigerian banking sector report, said Nigeria’s fiscal deterioration has continued unabated, with N23.7 trillion securitised ways and means liabilities pushing the country’s debt to N87.4 trillion in the first half of 2023.

“This, in addition to underwhelming revenue performance in first half of 2023 (actual revenue, N4.1 trillion, underperforms pro-rata target by 26.5 per cent, and 99 per cent of it, N4 trillion was used to servicing debt) has further put Nigeria on the cusp of insolvency,” the company said.

“Against this backdrop, the new administration of President Bola Tinubu has introduced some policy measures to assuage the fiscal pressure, notable amongst which are the “partial” removal of subsidy payment on PMS, the increase in education tax by 50 basis points to three per cent, and the introduction of a 7.5 per cent Value Added Tax on diesel.”

The measures by the government, according to Afrinvest, will not ensure a quick fix to the fiscal pressure in the near term.

Afrinvest said this is due to increasing internal and external pressure points on the economy and the time lag required for policy reforms to manifest gains.

In the report, Afrinvest said the unorthodox policy measures of the last administration should be reversed by the CBN.

The company said the CBN should restore market confidence in the apex bank’s autonomy and prioritise the core goals of price and exchange rate stability.

“Nonetheless, we believe that achieving all of these in a short-term would be a herculean task, given that complementary fiscal policy actions are required for the CBN to record gains,” Afrinvest said.

“In the meantime, we canvass that the authorities double down on efforts to check insecurity, curb oil theft, tame inflation, anchor market yield on Monetary Policy Rate, and improve the business environment.

“Also, we believe that the sustained high demand for FX in the parallel market due to lingering weak supply in the official market coupled with inefficient processing time, would continue to undermine the objective of these measures.”

The report said Nigerians and the banking industry are looking out for a positive and timely turnaround of stifling banking regulations and major monetary indices such as exchange rate, inflation rate, foreign portfolio investment (FPI) and foreign direct investment (FDI) flows.