Although the NNPC management has remained unexpectedly reticent on the impact of the new forex policy on fuel prices, however, the pump price of petrol cannot remain at N145/litre, if the Naira exchanges for N280=$1 or more. Indeed, unless NNPC accommodates a new round of subsidies, petrol will soon sell beyond N200/litre.
Invariably, marketers would defer their fuel imports until the price issue is resolved, especially when they have to borrow up to 50 per cent more with higher interest rates to fund fuel imports. If however, in the interim, NNPC’s congested import schedule faulters, severe supply shortages will resurface, and extended queues and frustrating delays at fuel stations will return.
Nevertheless, since budget 2016 made no provision for subsidy, a deregulated price regime will certainly spike petrol price and correspondingly propel inflation rate well above 20 per cent to create serious consequences for consumer demand and investment, with collateral adverse impact also on employment.
In addition, the recently established electricity tariff structure, predicated on Naira exchange of N197=$1, will become unsustainable, and a further hike in electricity tariff will be inevitable, much against consumer expectation.
Sadly the celebrated 30 per cent, 2016 capital budget, will also suffer, as the significant import components usually required for infrastructure and equipment may now require almost N300 billion more to fully implement; consequently, public expectation for urgent infrastructural remediation will still have to remain on hold.
Furthermore, our desire to diversify output and revenue sources away from crude oil will also become severely challenged by irrepressible production cost, which will invariably sustain inflation well beyond the current 16 per cent. In this event, CBN will be compelled to raise monetary policy rate to levels that will push cost of funds well above 30 per cent, to unwittingly make import substitutes more competitive. Ultimately, real sector operations will become crippled and any hope of economic diversification will gradually fade.
With respect to improved security infrastructure, the fiscal allocations voted to increase the capacity of the Armed Forces and other Agencies, will also become inadequate and require additional appropriation to implement. Sadly however, our presently distressed financial state will obviously make such supplementary allocation a challenge, unless we further deepen our already oppressive debt profile.
Evidently, the new forex policy has clearly exposed the increasing loss in Naira purchasing value. Incidentally, the N1,000 note which is currently our highest denomination is presently worth about $3. Going forward, we will either redenominate our currency profile, with say 2 decimal points or adopt N2,000, N5,000 and N10,000 note denominations, to facilitate portability. Regrettably, however, neither gimmick would stop further depreciation, as the Naira, clearly, no longer inspires much confidence as a safe store of value; for this reason, the public will still prefer to preserve the value of their income in dollars, even when they do not import anything.
Ultimately, the question must be why we readily surrendered a pound of our flesh in return for a platter of clearly unrealistic promises and benefits.
• concluded
