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‘Rising debts, food price inflation threaten economic recovery in Nigeria, others’

By Femi Adekoya
22 October 2021   |   3:06 am
Notwithstanding the economic recovery recorded in the sub-Saharan Africa region, as well as the modest growth projections for the remaining part of 2021 and 2022, the International Monetary Fund

[FILES] A local food marketplace

Notwithstanding the economic recovery recorded in the sub-Saharan Africa region, as well as the modest growth projections for the remaining part of 2021 and 2022, the International Monetary Fund (IMF), yesterday, warned that rising debts and food price inflation threaten to jeopardise previous gains in food security and exacerbate social and political instability.

The Fund, in its latest regional economic outlook for sub-Saharan Africa, stated that the region’s recovery depends on the progress in the fight against COVID-19 and is vulnerable to disruptions in global activity and financial markets.

The IMF noted that Africa’s economic rebound from pandemic-induced shrinkage would be weaker than in the rest of the world in 2021 and 2022.

Low rates of vaccination against Covid-19 across the continent top the list of reasons for the slower recovery, the Washington-based institution said in a biannual report on the region.

Growth for sub-Saharan Africa should reach 3.7 percent in 2021 and 3.8 per cent in 2022, “a welcome but relatively modest recovery,” the IMF said in its forecasts.

Those figures would nevertheless be “the slowest in the world given that the developed economies will grow by more than five per cent and the emerging or developing countries by more than six percent,” it added.

With just 2.5 per cent of people vaccinated against Covid-19, “lockdowns have been the sole option for containing the virus,” said IMF Africa chief Abebe Aemro Selassie.

The Nigerian economy is expected to grow by 2.6 percent thanks to high oil prices, even if production will remain below pre-Covid levels. The IMF predicts 2.7 percent growth in Nigeria for 2022.

An Economist and the Chief Executive Officer of the Centre for Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, had expressed worries that inflationary pressures remain a key concern in the Nigerian economy, both for businesses and the citizens, notwithstanding the marginal deceleration in headline inflation.

Yusuf identified exchange rate depreciation, liquidity challenges in the foreign exchange market impacting adversely on manufacturing output, security concerns affecting agricultural output, climate change, increasing cases of flooding and desertification in many parts of the country, structural constraints affecting productivity in the agricultural value chain as part of the drivers of inflation.

Analysts at Cordros Securities noted that though there are expectations that the primary harvest season would be below-average due to the persistent securities challenges in the country, an increased supply of farm produce to the markets in October is inevitable, just as the impact of high LPG and diesel prices will likely erode the harvest.

They added that diesel and LPG prices have continued to increase primarily due to the impact of the rise in crude oil prices, the current global energy crunch, and the government’s re-imposition of VAT on imported LPG.

“Accordingly, we expect the pass-through impact of increased transportation cost on food prices to limit the gains from the primary harvest season. Sequentially, we expect food prices to moderate by 6bps to 1.20 per cent m/m in October, translating to a year-on-year reading of 18.68 per cent.

“Even though 12 billion doses of vaccine are to be produced in 2021, it will likely take more than a year for a significant number of Africans to be vaccinated,” the Fund added.

Although Africa has been the region of the world least affected by the pandemic, it has also experienced several successive waves of the coronavirus, and “there is little reason to believe that there won’t be repeated waves going forward”, Selassie said.

He blamed “stockpiling by advanced economies, export restrictions by major vaccine manufacturing countries, and demands for booster shots in advanced economies” for shortages in Africa that could continue for the foreseeable future.

Selassie added: “international cooperation on vaccination is critical to address the threat of repeated waves.

“Widening gaps between countries have been accompanied by growing divergence within countries, as the pandemic has had a particularly harsh impact on the region’s most vulnerable.

“With about 30 million people thrown into extreme poverty, the crisis has worsened inequality not only across income groups but also across subnational geographic regions, which may add to the risk of social tension and political instability. In this context, rising food price inflation, combined with reduced incomes, is threatening past gains in poverty reduction, health, and food security.

“Furthermore, increasing debt vulnerabilities remain a source of concern, and many governments will have to undertake fiscal consolidation. Overall, public debt is predicted to decline slightly in 2021 to 56.6 percent of GDP but remains high compared to a pre-pandemic level of 50.4 percent of GDP.

“Half of sub-Saharan Africa’s low-income countries are either in or at high risk of debt distress. And more countries may find themselves under future pressure as debt-service payments account for an increasing share of government resources.”

Against this backdrop, Selassie pointed to a number of policy priorities, saying: “The difficult policy environment that authorities faced before the crisis has been made more demanding by the crisis. Policymakers face three key fiscal challenges: to tackle the region’s pressing development spending needs; to contain public debt; and finally, to mobilize tax revenues in circumstances where additional measures are generally unpopular.

“Meeting these goals has never been easy and entails a difficult balancing act. For most countries, urgent policy priorities include spending prioritization, revenue mobilization, enhanced credibility, and an improved business climate.

“The recent Special Drawing Right (SDR) allocation has boosted the region’s reserves, easing some of the burdens of authorities as they guide their countries’ recovery. And rechanneling SDRs from countries with strong external positions to countries with weaker fundamentals could help to bolster the region’s resilience.”