W’Bank: Currency Depreciations Risk Intensifying Food, Energy Crisis in Nigeria, Other Developing Economies

Emmanuel Addeh in Abuja

The shrinking value of the currencies of most developing economies like Nigeria, is driving up food and fuel prices in ways that could deepen the food and energy crises that many of them already face, the World Bank said yesterday.

In its latest Commodity Markets Outlook report, the World Bank noted that in US dollar terms, the prices of most commodities have declined from their recent peaks amid concerns of an impending global recession.

In Nigeria, from N580/$ at the end of December 2021, the naira depreciated to N707/$ by the beginning of October 2022, about 22.4 per cent in the parallel market within a period of nine months.

In the official window, within the same period, naira devalued from N414/$ to N425-N430/$ in the official market.

Food inflation in Nigeria quickened for the seventh straight month to 23.34 per cent in September of 2022 from 23.12 per cent in the previous month. It was the highest reading since October 2005, partly due to supply disruptions caused by recent widespread flooding and as a weaker currency continued to boost costs of imported food.

Higher prices were mainly observed for staples including bread and cereals, potatoes, yam, and other tubers, oils and fats, a release by the National Bureau of Statistics (NBS), said.

But according to the World Bank, from the Russian invasion of Ukraine in February 2022 through the end of last month, the price of Brent crude oil in US dollars fell nearly 6 per cent, but has not reflected in energy prices due to currency devaluation.

“Yet, because of currency depreciations, almost 60 per cent of oil-importing emerging-market and developing economies saw an increase in domestic-currency oil prices during this period. Nearly 90 per cent of these economies also saw a larger increase in wheat prices in local-currency terms compared to the rise in US dollars.

“Elevated prices of energy commodities that serve as inputs to agricultural production have been driving up food prices,” the global bank stated.

For instance, it said that during the first three quarters of 2022, food-price inflation in Sub-Saharan Africa averaged between 12 and 15 per cent.

“Although many commodity prices have retreated from their peaks, they are still high compared to their average level over the past five years,” said Pablo Saavedra, the World Bank’s Vice President for Equitable Growth, Finance, and Institutions.

“A further spike in world food prices could prolong the challenges of food insecurity across developing countries. An array of policies is needed to foster supply, facilitate distribution, and support real incomes,” he added.

Since the outbreak of the war in Ukraine, energy prices have been quite volatile but are now expected to decline. After surging by about 60 percent in 2022, energy prices are projected to decline 11 percent in 2023. Despite this moderation, energy prices next year will still be 75 per cent above their average over the past five years, it said.

The price of Brent, Nigeria’s crude oil benchmark, is expected to average $92 a barrel in 2023—well above the five-year average of $60 a barrel, the report added.

“The combination of elevated commodity prices and persistent currency depreciations translates into higher inflation in many countries,” said Ayhan Kose, Director of the World Bank’s Prospects Group and EFI Chief Economist, which produces the Outlook report.

“Policymakers in emerging market and developing economies have limited room to manage the most pronounced global inflation cycle in decades. They need to carefully calibrate monetary and fiscal policies, clearly communicate their plans, and get ready for a period of even higher volatility in global financial and commodity markets,” the World Bank report added.

The outlook for commodity prices is subject to many risks, it said, stressing that energy markets face significant supply concerns as worries about the availability of energy during the upcoming winter will intensify in Europe.

“The forecast of a decline in agricultural prices is subject to an array of risks. First, export disruptions by Ukraine or Russia could again interrupt global grain supplies. Second, additional increases in energy prices could exert upward pressure on grain and edible oil prices. Third, adverse weather patterns can reduce yields,” it noted.