Nigeria: Protracted crisis between Russia and Ukraine will cloud Nigeria’s economic outlook

Analysts have warned that the current economic difficulties in Nigeria could worsen if the Russian-Ukrainian war persists.

The President of the Chartered Institute of Bankers of Nigeria (CIBN), Abuja Branch, Professor Uche Uwaleke, said the situation could further widen the government’s budget deficit while the stock market witnesses negative investor sentiments.

Uwaleke in an interview with THISDAY said that the Central Bank of Nigeria (CBN) is currently crippled and cannot do much to address the growing threat of inflation in the country as the problem is largely structural .

He said: “I argue that to fight inflation we need to identify the main drivers first. versus demand pull factors).

“If the pressure on prices comes from the rising cost of petroleum products (PMS, aviation fuel, diesel, kerosene – not thanks to the Russian-Ukrainian conflict), electricity, transport costs, low infrastructure and food shortages due in part to insecurity and smuggling, the CBN becomes crippled and cannot do much.”

Reacting to the recent hike in the Monetary Policy Rate (MPR) by the apex bank’s Monetary Policy Committee (MPC), in response to inflationary pressures, the former IMO State Commissioner for Finance said: “The reality is that traditional monetary tools have reached their limits.

“Therefore, the solution does not lie in tightening monetary policy. Raising rates while economic growth is still sluggish and the government has drawn up borrowing plans to finance the deficit will only create distortions in the economy.”

He said: “I think the ‘price level tax theory’ which gives tax authorities a greater role in controlling inflation finds application here. At best, the CBN should continue to improve its tax function. development financing, especially its interventions in agriculture to ensure increased production given that the main inflation challenge comes from rising food prices.”

Also analyzing the impact of rising prices in the country, Managing Director/Managing Director of Credent Investment Managers Limited, Mr. Ibrahim Shelleng, said the CBN’s continued contractionary policy was a direct response to global inflationary pressures. , adding that central banks around the world have all raised interest rates in response to inflationary pressures caused by the Russia-Ukraine crisis.

He said that while this could be understood in the context of developed countries wishing to reduce demand-driven inflation caused by supply shocks, “I am not convinced that this same position will be effective in developing countries. where the dynamics are different”.

Shelleng said, “Firstly, in a country like Nigeria with a huge underbanked population, the effects of monetary policy are not as large and therefore the impact on the economy tends to be minimal.

“Secondly, given Nigeria’s stagflation (low growth, high inflation, high unemployment), changes to the MPR have had little effect in reducing the situation, although the fault also lies with the fiscal side” .

Christi C. Elwood