Investment Analyst Chizea says calls for naira devaluation will push inflation further
Investment Analyst Chizea says calls for naira devaluation will push inflation further
An investment Consultant and economic policy analyst, Dr. Boniface Chizea says the macroeconomic consequences that will arise from a devaluation of the naira will hurt growth and push Nigeria’s inflation rate over 25%.
Dr. Chizea while commenting on the recent call for devaluation of Nigeria’s currency said though devaluation is the easiest thing for the CBN to deliver to Nigerians, it is not what Nigerians need now.
He noted that it is easy for the CBN to follow sentiments and move the Naira to say N550/$ but what are its macroeconomic consequences/ implications?
“Government debt service is already over 90% of revenue. A devaluation will make it over 100% easily, leaving the federal government with practically nothing to spend on anything else. Inflation, though high at 17%, has been trending down in the last 5 months. A devaluation to N550/$1 will push inflation to over 25%, and the lasting effects could push it further to 30% or beyond,” he explained.
“Fixed income earners, which includes all government workers, will see their real wages (take home pay minus inflation) evaporate into thin air. The same pay they got last month, which they were already struggling to use to make ends meet, will simply buy less than half of what it bought them last month. The significant rise in inflation will ignite justifiable calls for salary increases and could cause social unrest, in a country where tensions are already high,” he added.
Dr Chizea argued that it is shortsighted to assume that the rates in the tiny parallel market which is less than 5% of Nigeria’s FX market, which serves many corrupt and illegal activities should determine the rate of the Naira.
“Loans that were indexed on FX movements, and/or FX loans themselves, will be immediately repriced with higher interest rates and terms will be made much tougher.
This could lead to widespread defaults, higher NPLs and financial system instability. Imports will become much more expensive, translating into higher production costs. Producers who can will pass the higher costs on to consumers, who will pay more the same goods. Producers who cannot pass on the cost will shut down their operations over time.
Nigerians who buy FX from the CBN for school fees, medical bills, BTA, PTA, etc will pay much more in Naira. Since imports value will rise astronomically and exports won’t our main export is oil which we cannot control its price or quantity, the country’s current account balance will go into deficit and make our balance sheet much worse!”
He called for a responsible interrogation of the structural issues responsible for the sustained pressure on the Naira. (V0N)
