The United Nations Conference on Trade and Development (UNCTAD) has decried the impact of naira scarcity on the Nigerian economy, especially the informal sector.
In its latest ‘Trade and Development Report, UNCTAD stated that financial distress in developing countries, heightened by rising borrowing costs, can trigger a crisis that may spread to the real economy through highly leveraged sectors, such as non-financial corporations and real estate.
According to the report, the continuing decline of oil production, accompanied by large-scale oil theft, poses a major threat to the strained finances in Africa’s most populous nation.
“In Nigeria, a shortage of cash, triggered by the replacement of the highest denominations of the country’s currency, hobbled the economy, especially the informal sector.
“The rising domestic cost of living and a deteriorating security situation remain of a key concern in many parts of the Africa continent. More than 116 million African people are currently in acute food insecurity.
The Organization also noted the risk of stagflation as a key concern for many African economies, as approximately half of the countries inflation remained double digits in early 2023.
“In many instances, these recent inflation spikes relate to the continuing depreciation of several African currencies in early 2023 – often following a loss in 2022 of 10–30 per cent of their value vis-à-vis the dollar.”
Similarly, high level of public debt was also highlighted as another worry across the continent, as the report showed that out of the 38 African countries that are part of the Debt Sustainability Framework (DSF) of IMF and World Bank, 8 entities are already in debt distress, while 13 are considered at high risk of distress.
The report showed that lack of adequate access to finance and high debt service obligations, especially on foreign debt, is forcing countries to make difficult decisions.
“Debtors can either prioritize paying off their debts on time or fulfilling their obligations to their citizens. Most countries prioritize debt payments to avoid a default, even if it means sacrificing development. This trend can be seen in the evolution of government spending on education, health, and debt service relative to their revenues over the past decade.”
Also, the Africa economy is projected to expand 2.5 percent in 2023, a drop from last year and at a pace insufficient to make a dent in poverty levels.
It stated that weaker external demand and tighter financial conditions have made growth prospects gloomier for the region.
“Rising global interest rates have triggered significant capital outflows and have further constrained fiscal space, at a time when public finances were already severely affected by costly subsidy schemes aiming at contending the adverse effects of high food and energy prices,” it added.
