The Federal Government has been warned by the Association of Bureaux De Change Operators of Nigeria (ABCON) against taking actions that could exacerbate the effects of the population’s rising inflationary trend.
In its Quarterly Economic Review for the second quarter of the year, Q2’22, ABCON issued this caution, highlighting the negative effects of the sudden increase in commodities prices brought on by the COVID-19 outbreak and the ongoing Russian conflict in Ukraine.
Nigeria must strike a compromise between maintaining its fiscal stability and the need to lessen the impact of these overlapping crises on its most vulnerable population. The impoverished in Nigeria are not immune from the intense pressure on commodities, especially oil and gas, according to ABCON.
“Galloping energy prices, as seen in Nigeria at the moment, are accompanied by decreased real incomes, rising production costs, tighter financial conditions, and restricted macroeconomic policy.
The Association continued, “Under the current conditions, the Government must avoid any distorting policies, such as multiple taxes, subsidies, and all fiscal tightening, which could make the recent rise in commodities prices worse.”
In view of the increased inflation, poorer economic development, and tighter financial conditions, ABCON called on the FG to cushion and reprioritize its spending with an emphasis on targeted support for vulnerable communities.
According to ABCON, such reliefs should consist of comprehensive harmonization of all local, state, and federal taxes that are currently placing a significant burden on Nigerian citizens; deliberate and dynamic monetary policy to optimize interest rates to stimulate savings, investments, and production; and better coordination of monetary and fiscal policies to avoid conflicting effects harmful to set objectives.
The nation’s credit risk will be weakened by the steep and ongoing depreciation of the naira since the start of the year, according to ABCON, which also warned that this trend will increase the country’s debt service burden and hinder foreign capital inflows into the country.
“All economic actors should be seriously concerned about the trend of the local currency’s exchange rate depreciation. Severe exchange rate fluctuations, and particularly large depreciations, can cause price instability, and they can do so in ways that are discontinuous and non-linear, as they are currently happening in the Nigerian economy. The foundation of orderly economic activity is monetary stability, which is typically accompanied by at least moderate exchange rate stability over the medium term.
“The current trend of rising currency depreciation in opposition to increased debt servicing costs raises the credit risk of borrowers, mitigates against more capital inflows, and tightens financial conditions.