ABCON warns against policies that fuel inflation
With inflation at a five-year high of 18.6%, the Association of Foreign Exchange Operators of Nigeria (ABCON) has warned the Federal Government against policies that could worsen the impact of the inflationary trend increasing on the population.
ABCON, in its quarterly economic review for the second quarter of the year, the second quarter of 2022, noted the severe impact of the sharp rise in commodity prices triggered by the COVID-19 pandemic and the ongoing Russian war. in Ukraine.
“Nigeria must balance fiscal sustainability with the need to mitigate the effects of these overlapping crises on the poorest citizens. The excruciating pressure on commodities, especially oil and gas globally, does not absolve the poor in Nigeria,” ABCON said.
“Roaring energy prices, as is currently the case in Nigeria, with lower real incomes, increased production costs, tight financial conditions and constrained macroeconomic policy.
“Under these current circumstances, the government should avoid all distorting policies such as multiple taxes, subsidies and any fiscal tightening, which could aggravate the recent rise in commodity prices,” the Association added.
In this context, ABCON called on the FG to cushion the reprioritization of its spending by emphasizing targeted assistance to vulnerable populations, in order to cushion the impact of higher inflation, economic growth weaker economy and tighter financial conditions.
Such relief, explained ABCON, should include: Full harmonization of all local, state and federal taxes which currently impose a heavy burden on Nigerian citizens; A proactive and dynamic monetary policy to optimize interest rates in order to stimulate savings, investments and production; Better coordination of monetary and budgetary policies to avoid contradictory effects that are detrimental to the objectives set.
ABCON also noted the sharp and persistent depreciation of the naira since the start of the year, warning that this trend will increase the country’s debt service burden and thus undermine the country’s credit risk and also hamper foreign capital inflows. in the country. such as increasing the country’s debt servicing burden.
“The trend of depreciation of the local currency exchange rate is undoubtedly a serious source of concern for all actors in the economy. Large fluctuations in the exchange rate, and in particular large depreciations, can destabilize prices, and can do so in non-linear and even discontinuous ways, as is currently the case in the Nigerian economy. “Monetary stability, usually accompanied by at least moderate exchange rate stability over the medium term, is the cornerstone of orderly economic activity.
“The current trend of further depreciation in the value of the currency in the face of increased debt service increases the credit risk of borrowers, opposes more capital inflows and tighter financial conditions.
“Analysts have established, through heterogeneous panel cointegration methods, that depreciation of the domestic currency leads to an increase in the long-term external debt-to-GDP ratio and therefore could reduce external debt sustainability,” said the association.