Former Nigeria Finance Minister and presidential candidate of the Alliance for Democracy (AD) in the 1999 presidential election, Olu Falae, has linked the worsening inflation crisis in the country to the naira devaluation.
Falae aired this opinion during his guest appearance on Channels Television’s Politics Today programme on Thursday.
Challenging the widespread notion circulated on traditional and social media platforms that the inflation crisis in Africa’s largest economy stems from heightened demand for goods and services, the former Finance Minister clarified that, according to available metrics, the current inflation issue results from rising production costs, known as cost-push inflation.
“The devaluation of the naira is the main cause of the high level of inflation today in our country,” Falae said. “And I suspect that the scarcity of naira, which everybody feels, including myself, is an attempt by the government and the CBN to manage this inflation. If that is so, then I am afraid that they have to think again.”
Speaking further on the issue, he said, “The cost of import is the cost of raw materials, machinery, and spare parts. The increase in the cost of those items is what is substantially causing the inflation we are facing today.”
Arriving at this assertion, the high-ranking traditional ruler in Ondo State spoke about one of the fundamental challenges he was able to deal with as finance minister during the administration of former military president Ibrahim Babaginda.
According to him, the critical challenge the country faced during his time was dealing with the huge external debt—a situation that led to the implementation of the Structural Adjustment Programme (SAP).
The external debt was influenced by an increased appetite of Nigerians for foreign goods, which the country couldn’t pay for.
He said, “Nigerian businesses had imported a lot of foreign goods for which we could not pay, and that crystallised into huge external debt.
“And of course, that had an immediate impact on the foreign currency in the naira, and we found it extremely difficult to pay for imports and to even open letters of credit for essential goods such as drugs, wheat, bread, and many others.
“And unfortunately, at that time, the price of oil dropped to as low as $10 a barrel.
“So we had it from all directions, but we were able to navigate the situation through a series of measures that people collectively called the Structural Adjustment Programme (SAP), which had both a positive and negative impact on the economy.”
He admitted that despite the unpleasant effects of the SAP programme, the administration of President Babaginda was still able to “clear our debt to a level where we could start paying without sacrificing our ability to import essential goods.”
Falae added that as a result of the SAP, the country was “able to encourage Nigerians to produce other items outside of oil to earn foreign exchange. And we were able to achieve a level of development and diversification even in our crisis period.”
He emphasised that it was important for the federal government to deal with the exchange rate crisis, saying, “Once the exchange is not right and the naira is weak, then automatically we are importing a lot of inflation into the country.”