Analysts pinpoint fuel subsidy as biggest cause of inflation

By Joshua Amaugo August 4, 2015 10:22

Analysts pinpoint fuel subsidy as biggest cause of inflation

An economic expert and Chief Executive of Les Leba Nigeria Limited, Henry Boyo has crticised the Central Bank of Nigeria, CBN, decision to substitute the Naira for the Dollar in paying States their monthly allocations.

According to Boyo, “This creates the constant burden of excess liquidity” which by implication puts pressure on the Naira a major cause of currency crisis in the country.

As the country’s major source of income continues to shrink in the international market, which has adversely affected the exchange rate of the Naira to the Dollar, Boyo, dismissed the notion that the Federal Government bailout and Anambra 15% increment of salary is the major cause of inflation.

He noted that the major cause of inflation is neither the CBN ban of 41 items but “The substitution of Naira sums as replacement for monthly allocations of dollar-derived revenue.

“The CBN should be blamed for the currency crisis, I have been saying this for years and nobody is listening”

“The CBN ban on 41 items is not the main issue, the main issue is the substitution of Naira sums as replacement for monthly allocations of dollar-derived revenue, “this creates the constant burden of excess liquidity.”

“If the Governor of Anambra wants to increase salaries, we should applaud him for that and not persecute him for that. If the Governor wants to increase a salary, that’s his burden.”

Boyo however questioned that where in the world will a country financial regulating body such as CBN will be carrying out its transaction with another country domestic currency instead of our domicile currency.

He noted that the only way Naira can gain back its value is in the event illegal foreign currency transactions were curbed with the use of local currency encouraged over the Dollar.

According to him, the Government, after receiving Dollars as exchange for crude sold at the international market, allows CBN in turn to pay States their monthly allocation in that same Dollars instead of converting the currency to Naira.

This according him puts pressure on the Naira as the individual States have to convert such money to Naira, leading to excess liquidity.

On the other hand, another economic expert Ononuju Katch, while reacting to the 9.2% inflation rate in the country stated that the major cause was subsidy.

He noted that as long as Government continues to subsidise fuel, bearing in mind the fall in crude prices at the international market, pressure will continue to be on the Naira and inflation will continue to be on the rise.

He called on President Muhammadu Buhari to remove fuel subsidy, and create a level playing ground for the private sector to come in, which will in turn in the long run benefit the country as the price will naturally fall when there is large supply.

One of the causes of inflation in Nigeria has been the various government polices to stimulate a fast rate of economic growth and development since independence.

Inflation, if not properly treated could develop into hyper-inflation, and subsequently, destroy an otherwise flourishing economy.

According to analysts inflation has two sides; the demand and supply conditions.

Ononuju said the CBN solution had been, and still is partial based on the demand equation leaving out the supply angle.

    “The Central Bank‘s strategy to battle inflation has been based on the discredited monetary policy, interest rate manipulations,” he said.

By implication, Nigerians (those who have the means) have to pay extra to buy goods and services which will in turn drain their individual economy, subjecting more to hunger and poverty.

The question is what happens to the unemployed, the poor who does not have any source of income?