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Analyst expresses concern over rising inflation, increased public debt

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Debt. Photo: RTE

Projects Economy To Record Headwinds In Q4 2020, Q1 2021

Amid an already turbulent period, an expert has raised concern over the rising inflation and a sharp increase in the country’s public debt.

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Senior Research Analyst at FXTM, Lukman Otunuga, said the depressed oil prices enduring a prolonged lapse in demand had not helped matters, especially as the outcome of the protests was projected to cost over N700b in output, which may drag on real GDP.

He said the rising public debt, together with inflation, has become a cause for concern, as Nigeria has witnessed three consecutive quarters of rising inflationary pressures, shaky economic fundamentals, Dollar scarcity, and low oil prices.

According to him, the curfews imposed on Lagos worsened the outlook for the already fragile economic landscape and local businesses, which bore the marks of deep wounds from COVID-19.

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He said: “Inflation rose for 13 months straight, hitting 13.71 per cent in September. Price increases were seen mainly in medical treatment, electricity, food supplies, and passenger air travel, but so far, have not impacted the oil industry.

“This was a welcome development, given that oil accounts for over 90 per cent of export earnings and 70 per cent of government revenues.

“Focusing on the Naira, the banking system clamped down on speculation and limited foreign exchange transactions by individuals and corporations. The intention was to stabilise the currency, which was at the centre of a perfect storm of low oil prices, Dollar scarcity, and a weaker economy.”

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He said external pressures, like the presidential elections in the United States, added to the uncertainty prevailing around Nigeria’s economic outlook, especially the oil prices.

Otunuga argued that the downside scenario might weigh on Nigeria’s economy, in spite of efforts to diversify and reduce its reliance on the oil industry, noting that a Trump win might increase oil markets’ confidence in the short term, while in the medium term, COVID-19 remained the main problem for oil demand.

He projected that Nigeria’s economy would face unprecedented headwinds in the fourth quarter (Q4) of 2020, and in Q1’2021.

Otunuga said the challenge would be to get through the storm of a weakened economy facing internal and external threats, and reaching a place where there would be smoother sailing.

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