• Business - Economy
  • Updated: September 09, 2021

Nigeria Ranked Among Nations Least Prepared For Rising Global Inflation

Nigeria Ranked Among Nations Least Prepared For Rising Globa

Nigeria is among the countries most unprepared to cope with the pressure of accelerating global inflation and rising interest rates in the United States.

Africa's largest economy currently has a negative real interest rate at -5.9 percent, which ranks her among nations with the lowest real interest rates in emerging and frontier markets (Real interest rate is gotten by subtracting the last-reported year-on-year inflation from the current policy rate).

According to Tellimer Research, a global technology, information and data provider, Nigeria’s negative real interest rate exposes it to exchange rate pressures and further capital flow reversals in the face of rising global inflation, and in the event that the United States starts to pull back from its monetary stimulus, which could, in turn, drive interest rates in the US higher.

Nigeria is already faced with current account pressures due to a drastic slump in dollar inflows. The country’s trade deficit swelled to the most on record in the first six months of 2021, hitting N5.81 trillion as imports surged.

Nigeria’s Monetary Policy Rate (MPR) has remained at 11.5 percent since September 2020, while inflation has slowed to 17.38 percent in July 2021 from a high of 18.17 percent in March. There however remains a considerable gap between both rates.

Other African countries with the lowest real interest rates (below minus 1%) that are the least prepared and most vulnerable are Mauritius and South Africa; while in Asia, countries like Hong Kong, Pakistan, Philippines, South Korea, Sri Lanka, and in Europe: Iceland, Georgia, Poland, Romania, and Ukraine, among others.

What this implies is that should global conditions, inflationary pressures or US rates significantly deteriorate, countries with lower real rates need higher rates hike, which leads to more damage to growth.

Tellimer notes that global food prices are accelerating again and are up 33 percent yoy. In view of this, Hasnain Malik, strategy and head of equity research at Tellimer Research, believes that emerging markets with higher real interest rates should be better prepared in case inflation persists or the US starts tapering (and US yields go up).

The highest real rates are found in China, Indonesia, Taiwan, Vietnam in Asia; Egypt, Ghana in Africa, and Bahrain and UAE in the Middle East.

Foreign investment into Nigeria slumped to the lowest level in four years in the first six months of 2021, according to the National Bureau of Statistics (NBS).

The total value of capital imported into Nigeria declined to $875.62 million in the second quarter (Q2) of 2021, the NBS said in its latest report. This represents a 54.06 percent drop compared with the $1.91 billion in the first quarter (Q1) of 2021.

FDI dropped to $77.97 million in Q2’ 2021, indicating a 49.6 percent and 47.5 percent decline compared with $154.76 million and $148.59 million recorded in the previous quarter and Q2’ 2020, respectively.

At its last meeting in July 2021, the Monetary Policy Committee (MPC) noted the rise in inflation above the long-run objectives of some key advanced economies, although reported as transient and therefore not expected to lead to an adjustment of the stance of monetary policy.

However, the Committee pointed out the lingering risk of an early return to monetary policy normalisation, should price development continue to trend upwards.

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