Nigeria is in stagflation

Below is a summary of my column in today’s BusinessDay. The editor there toned down my initial headline, which is what I’m using here…

Upon gaining power in 1979, the Margaret Thatcher administration made the defeat of inflation in the UK its number one priority. The 1970s were a difficult time for Britain inflation-wise, and Mrs Thatcher was willing to do anything to stop it.

With Nigeria’s food inflation at 22.95 percent and headline inflation at 18 percent, the CBN doesn’t appear to be dealing with the issue of rising consumer prices with the urgency that it deserves. The consumer price situation is compounded by low-output growth and high unemployment. Essentially, the country could add stagflation to its challenges.

Despite the CBN’s key mandate of ensuring monetary and price stability, one of the major inflationary pressures over the last few years has been the regulator’s capital controls. Problem is, Nigeria never does much by way of assessing the impact of policies. For example, President Buhari has now admitted that the 15-month border closure measure was ineffective. What he did not say, but what most observers know, is that the border closure was a huge factor in the food price increases.

Confirming the low-income status of the Nigerian economy, a study by SBM Intelligence showed that 63 percent of Nigerians spend 59 percent of their income on food alone. This scenario just highlights the enormous impact high food inflation has on the Nigerian population as the rising cost of food, which is the most basic essential, will impact all other expenditure. At the state level, the February inflation data showed food inflation was highest in Kogi (30.47 percent), followed by Ebonyi (25.73 percent) and Sokoto (25.68 percent).

The IMF has called for a reform of the CBN’s monetary policy operational framework as a means of tackling inflation. Key among the Fund’s recommendations is for the CBN to curtail its financing of the government’s budget deficits. As the government’s revenue plunged in recent years, the CBN scaled up its Ways and Means facility (WMF) for funding government budgets. Fitch goes further than the IMF in its warning, saying the increase in the use of the WMF raises macro-stability risks and limits the CBN’s ability to control inflation.

The way out is in tax revenue, but to mobilise that effectively to fund its budgets, the government needs to create a stable macroeconomic environment for private enterprises to thrive and create jobs, and for businesses and workers to pay their taxes. Unfortunately, it appears that Buhari’s Abuja is more interested in central control than in unleashing the undoubted capability of the people that occupy this geographical expression.