Nigeria May Slip Into Stagflation – Rewane

Renowned economist and Chief Executive Officer of Financial Derivatives Company (FDC), Bismark Rewane, has warned that Nigeria has a 25 percent probability of slipping into stagflation. Rewane, who is also a member of the President Muhammadu Buhari’s Economic Advisory Council, said this at the Lagos Business School (LBS) executive breakfast session for October. Stagflation is a combination of undesirable economic outcomes – stagnant growth and rising inflation. It is such a rare occurrence with very few examples. The last incident of global stagflation was between 1974 and1976 when oil prices quadrupled, inflation spiked to 25%, growth slumped and interest rates jumped. Rewane said: “Today, the global economy is teetering on the brink of a recession while Nigeria faces the unlikely spectre of stagflation due to a combination of factors including vulnerability to exogenous shocks and a rising import bill.” He said the CBN seems to be leaning towards a combination of options that will keep interest rates high until inflation falls below the upper limit of its 6-9% target. “However, this looks most unlikely if you consider the full implications of the border closure on prices.” “As if things were not already complicated, the price of Brent crashed today below $57pb. This is at a time when Nigeria’s external buffers are dwindling. “External reserves lost 4.04% in September (now at $41.77bn). With pale GDP growth of 1.94% (Q2’19), there is a good reason for fiscal stimulus with an attendant multiplier effect on national income. That is why to some, the prudent, conservative and contractionary budget of N9.79trn proposed for 2020 is difficult to justify,” he stated. He mentioned some factors to include pressure on price level due to minimum wage consequential costs; terms of trade deteriorating, border closure plus food import restrictions hiking food inflation, among others.