BY JONAH NWOKPOKU

A financial consultant, Dr. Biodun Adedipe of B. Adedipe Associates Limited has said that the current single digit inflation which hovered between 8.0 percent and 7.8 percent in the first quarter of 2014 is not sustainable because of the expected increased spending that will be occasioned by the 2015 general elections.

He stated this while delivering a paper on, ‘The Impact of Asset Management Corporation of Nigeria on the Nigerian economy’ at a symposium organised by Bank Directors Association of Nigeria in Lagos.

According to him, “Throughout 2013, inflation remained single digit, recording its highest level of 9.5 percent in February 2013. In similar trend, inflation from January to March 2014 maintained single digit of 8.0 percent, 7.7 percent 7.8 percent respectively. While this, along with other aggregate statistics, is good for macroeconomic stability of the Nigerian economy, there is likelihood that it may not be sustained to the end of the year and into 2015, as politicians and their parties increase spending towards the State and Federal elections scheduled for 2014 and 2015.”

Adedipe also said that devaluation of the nation’s currency, the Naira is unavoidable this year due to persistent pressure on the value of the currency.

He said, “Persistent pressure on the value of the naira that began in the fourth quarter of 2013 continued into the first quarter of 2014. Consequently, the premium on the official exchange rate of the Central Bank’s Dutch Auction System (DAS) at the parallel market (Bureau de Change) has widened to 10.43 percent, which is considerably above the recommended limit of 5.0 percent in the first quarter of 2014 and has become an incentive to round-tripping.

“When taken along with the softening external reserves from $43.61 billion at the end of 2013 to $37.9 billion in March 2014; weakening accretion to reserves caused by oil theft and production losses, unrelenting high import propensity and suspected capital flight which is evidenced by the dampening of the stock market, the high exchange rate premium makes the devaluation of the Naira in 2014 inevitable.”

He also noted that, “Increasing debt stock has also become worrisome, especially as it is difficult to tie the mounting debts to specifics in terms of projects and programmes. Total debt stock (external and domestic) as at December 2013 stood at N10.04 trillion ($64.5 billion) of which N1.37 trillion and N8.67 trillion were external and domestic debt respectively. This represents a 21 percent increase from N7.93 trillion ($50.91 billion) in June 2013.”