Presidency: Rising Inflation Not Peculiar to Nigeria, Challenge Global

•IMF: African currencies under pressure, depreciated by 8% since January 2022 

•Ghana, S’Leone currencies suffer over 45% drop

Deji Elumoye, Ndubuisi Francis in Abuja and Segun James in Lagos

The Presidency yesterday rose in stout defence of the rising inflation rate in the country, saying the menace is global, and not peculiar to Nigeria. Presidential spokesperson, Mallam Garba Shehu, said this in a statement, titled, “Re: Buhari Leaves Inflation at Highest in 17 Years.”

The presidential assertion came as the International Monetary Fund (IMF), in a report yesterday, stated that most sub-Saharan African currencies had weakened against the United States dollar. IMF the situation fanned inflationary pressures across the continent as import prices surged.

The presidency cited statistics from nations across the world to back its claim that the current rising inflation was a global concern worsened by the outbreak of the COVID-19 pandemic three years ago and the Russia/Ukraine war.

Shehu, while alluding to the fact that Nigeria’s current 22 per cent inflation rate was high and worrisome, however, submitted that the Buhari administration was taking serious steps to stem the global cost of living crisis.

The presidency stated, “These days, the newspaper (not THISDAY) is at its best when it comes to twisting politically sensitive facts to suit its preconceived notions.

“In one of its highest fallacies, the paper this morning is tying the rise of inflation to its 17-year high to the person of the president, Muhammadu Buhari, who leaves office in exactly two weeks from this day.

“Anybody who promotes this kind of thinking is telling the whole world that they either don’t know what is happening all over the world or they are not paying attention to the facts.

“This stubbornly high inflation is a world-wide problem and no nation is immune to it since the global economic downturn triggered by the COVID-19 pandemic.

“Inflation was boosted everywhere by the COVID-19 lockdowns with severe impact on national economies due to the dislocation of manufacturing and supply chains.

“This is what led to fewer goods and the rises in prices of those goods reaching the market.”

The presidency added, “Considering that Nigeria relies heavily on imports for essential products like petroleum, cooking oils, fertilisers, crop chemicals, and others, international price fluctuations significantly impact local prices. The government, unless it chooses to disregard the principles of free trade, has limited manoeuvrability in this regard.

“France, which enjoyed a stable average inflationary regime of 4.1 per cent from 1960-2022 is today reporting price increases of up to 1,080.36 per cent.

“At 10.1 per cent, UK inflation is at a 41-year high. Ghana’s inflation rate had hit a two-decades high of 54.1 per cent before a recent decrease.

“Turkey’s rate is 45 per cent, Pakistan has also reported an alarming high inflation rate comparable to countries with similar profiles.

“The war in Ukraine meant a rocketing in foodstuff prices leading to fear of famine in many countries, never mind inflation!

“While Nigeria’s reported inflation rate of 22 per cent is undoubtedly high and worrisome, it would be incorrect to suggest that the Buhari administration is not making efforts to address the volatile global cost of living crisis.

“President Buhari has consistently prioritised efforts to control inflation and continues to do so.”

IMF: African Currencies Under Pressure, Depreciated by 8% Since January 2022

Most sub-Saharan African currencies weakened against the United States dollar, fanning inflationary pressures across the continent as import prices surged, the IMF stated yesterday.

The IMF stated in its Regional Economic Outlook for Sub-Saharan Africa that the average depreciation for the region since January 2022, was about eight per cent, adding that the extent varies by country, with Ghana’s cedi and Sierra Leone’s leone depreciating by over 45 per cent.

The currency depreciation in the region, together with a growth slowdown, leaves policymakers with difficult choices as they try to keep inflation in check with a still-fragile recovery, the IMF added.

According to the multilateral lender, the depreciations across the region are mostly driven by external factors. It said lower risk appetite in global markets and interest rate hikes in the United States pushed investors away from the region towards safer and higher paying US treasury bonds.

It stressed that foreign exchange earnings took a hit in many countries as demand for the region’s exports dropped because of the economic slowdown in major economies.

 At the same time, high oil and food prices, partly due to Russia’s war in Ukraine, pushed up import costs in 2022.

The IMF noted that large budget deficits had compounded the effects of these external shocks by increasing the demand for foreign exchange.

About half of the countries in the region had deficits exceeding five per cent of Gross Domestic Product in 2022, putting pressure on their exchange rates, it added.

Commenting on the implications of the currency depreciation in Sub-Saharan Africa, the IMF stated that when currencies weakened against the US dollar, local prices rise, as much of what people buy, including essential items like food, are imported. More than two-thirds of imports are priced in US dollars for most countries in the region.

IMF stated that a percentage point increase in the rate of depreciation against the US dollar leads, on average, to an increase in inflation of 0.22 percentage points within the first year in the region.

IMF said in the report, “There is also evidence that inflationary pressures do not come down quickly when local currencies strengthen against the US dollar.

“Weaker currencies also push up public debt. About 40 per cent of public debt is external in sub-Saharan Africa and over 60 per cent of that debt is in US dollars for most countries.

“Since the beginning of the COVID-19 pandemic, exchange rate depreciations have contributed to the region’s rise in public debt by about 10 percentage points of GDP on average by end-2022, holding all else equal.

“Growth and inflation (which reduces the real value of existing debts) helped to contain the public debt increase to about six per cent of GDP during the same period.

“Many central banks in the region have tried to prop up their currencies by supplying foreign exchange to importers from their reserves,” it added.

It noted that with reserve buffers running low in many countries, there was little room to continue intervening in foreign exchange markets.

“Countries have also applied administrative measures such as foreign exchange rationing or banning foreign currency transactions. These measures can be highly distortive and create opportunities for corruption.

“Given that the external shocks are expected to persist, countries where exchange rates are not pegged (fixed) to a currency have little choice but to let the exchange rate adjust and tighten monetary policy to fight inflation.

“Countries with pegged exchange rates will need to adjust monetary policy in line with the country of the peg. In both country groups, fiscal consolidation can help to rein in external imbalances and limit the increase in debt related to currency depreciation. Structural reforms can help to boost growth.”