The Managing Director, Financial Derivatives Company Limited, Bismarck Rewane has predicted 16 per cent inflation figure by 2021.
The economist said inflation will remain high in 2021 as naira devaluation, price deregulation and exchange- rate restrictions for staple imports feed into consumer prices.
Speaking at the Financial Market Dealers Association (FMDA) Forex Workgroup webinar held last Friday on the theme: ‘Global & Domestic Economic Outlook – 2021’, Rewane, said inflation, which stood at 14.23 per cent in October, is fast approaching 15 per cent.
The FMDA, led by its President, Mrs. Adetoun Dosunmu, is an Association of licensed Deposit Money Banks (DMBs) operating within the Nigeria Financial market, emphasizing on regulatory policy engagement/advocacy and professional ethics in the financial markets.
Continuing, Rewane said the naira has lost over 26.72 per cent of its value so far in 2020.
He attributed the naira’s continued decline to heightened forex supply shortage, demand pressure and rationing. He disclosed that convergence of naira rates would require the adoption of a full floating exchange rate system determined by the forces of demand and supply.
On the economic growth and sectors expected to drive the economy, He predicted that ICT & Construction will remain among fastest growing sectors in the fourth quarter, Agricultural Sector performance could be tapered by output constraints and higher logistics costs, Real Estate and Aviation are expected to remain in negative territory while Contracting Sectors are mostly interest rate sensitive and employment elastic.
Speaking on the global economy in 2021, he said the COVID-19 pandemic will cause ‘lasting damage’ to living standards. He said the global real Gross Domestic Product (GDP) growth to increase by 4.4 per cent in 2021 after a five per cent contraction in 2020.
He said a full recovery of the global economy is unlikely until 2022/23 adding that some economies including China will recover to their 2019 level by 2021.
Continuing, Rewane said emerging markets especially in Sub-Saharan Africa will recover mainly in 2023/24 and that availability and effective use of the COVID-19 vaccine will accelerate the recovery process.
“Advanced economies will face low growth, low inflation and high levels of debt. Debt restructuring will be a major strategy for most economies including Nigeria & Sub-Saharan Africa countries,” he predicted.
He said the world expects US President-elect, Joe Biden to lead US into taking the global lead in response to COVID-19 and repair relations and reaffirm American values and global role.
On the state of the Nigeria economy, Rewane said the country is currently in a recession with -3.63 per cent growth in the third quarter, rising inflation and lower interest rates. He said these indicators will lead to a negative real rate of return to investors, depleting external reserves (now at $35.45 billion), increased forex demand pressure adding that the naira now at N495/$ at the parallel market.
Rewane said: “Nigeria is officially in a recession with the GDP contracted to -3.62 per cent in the third quarter, albeit at a slower pace as against -6.10 per cent in second quarter. According to the IMF review, Nigerian economy is struggling with multiple shocks, and is expected to grow by -4.3 per cent in 2020 before a modest recovery in 2021(1.7 per cent). Exchange rate rigidities have constrained the economy’s ability to absorb external shocks”.
Continuing, he said forex backlog and shortages intensifying Balance of Payment (BoP) pressures while exchange rate unification imperative to reduce BoP risks.
He predicted that fiscal deficit will stay elevated in the medium term even as additional domestic revenue mobilisation is required to reduce fiscal risks.
On why naira is getting weaker, Rewane said the local currency has lost 26.72 per cent so far in 2020 and currently N495/$ at the parallel market.
He said factors responsible for the divergence include heightened forex supply shortage, demand pressure and rationing. He said that for the rates to converge would require adoption of a full floating exchange rate system determined by the forces of demand and supply.
Speaking further, Rewane said the FMDA seeks to grow and develop the financial markets as well as protect the interest of its members in the exercise of their dealing/trading activities.
The foreign exchange workgroup of the FMDA consists of individuals from several banks.
He explained that a perfect market is a theoretical market in which buyers and sellers are so numerous and well informed that monopoly is absent and market prices cannot be manipulated.
He added that a perfect market can not be influenced and that both buyers and sellers have perfect information about the price, utility, quality, and production methods of products. Also, identical assets can not assume different prices, the is free entry and exit from the market, no transaction cost and very thin margins.
– The Nation