With the Russia-Ukraine war in its fifth month, Nigerians are feeling a harder pinch with the scarcity of energy sources, wheat, and fertilizer, over what importers attribute to logistics issues, as well as a worsening foreign exchange (forex) scarcity.
The inflation rate is also rising, as well as a stretch in the over N41.6trillion debt servicing, which has exceeded revenue generation.
According to the World Bank, “We see an elevated risk of recession over the next two years, reflecting the greater potential for the geopolitical tumult, stubbornly high inflation that reduces households’ real disposable income, and central banks’ intense focus on fighting inflation first, which raises the risk of financial accidents on top of the sharp tightening of financial conditions already seen.”
Global monetary tightening to stoke further inflationary pressure
The recent surge in the United States (US) inflation to 9.1 percent has substantially increased the probability of a 100bps hike in interest rates later this month.
This happens as the US dollar has already experienced significant appreciation in value this year in response to previous rate hikes.
The dollar recently reached equal parity with the Euro for the first time in two decades as recession fears and rising rates continue to fuel a rush for the greenback.
The surge in the dollar’s value comes at the expense of other currencies, especially those from emerging markets and developing economies (EMDE’s).
Nigeria, being an import-dependent country, is heavily reliant on the import of commodities priced in dollars. As the value of the dollar rises and these dollar-priced commodities become more expensive for holders of other currencies, such as the naira, high incidents of imported inflation will arise and weigh on the spending power of domestic consumers.