The Centre of the Promotion of Private Enterprise (CPPE) has said the Russian invasion of Ukraine has multidimensional implications for the Nigerian economy, particularly, if the conflict escalates.
Chief Executive Officer of CPPE, Dr Muda Yusuf, pointed out that the invasion has implications on the domestic economy, which include the escalation of energy prices including diesel, aviation fuel, kerosene and gas, mounting petrol import and subsidy bill and aggravation of petrol smuggling.
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He also highlighted macroeconomic outcomes, which include the heightened fiscal deficit, growing debt levels, spike in debt service payments, money supply growth, exchange rate depreciation and more intense inflationary pressures.
Yusuf further noted that the cost of flour, price of bread and other confectioneries may also take a hit, should the conflict get protracted.
The economist pointed out that Russia is the second-largest producer of oil globally, even ahead of Saudi Arabia as it produces 10 million barrels per day. As such, there is a good chance that the conflict in the region will disrupt oil supplies, reduce output and trigger higher prices while the deregulated components of petroleum products such as diesel, aviation fuel, kerosene and gas would also witness sharp increases.
“The escalation of these costs obviously has serious inflationary implications across sectors. The geopolitical tension of the recent weeks had bolstered energy prices even before the current onslaught by Russia.
“The situation may get worse if the conflict escalates. This would affect the cost of production, profit margins, purchasing power and may further worsen the poverty situation.
“Ideally, high oil price increase should be good news for oil-producing countries. It typically impacts positively on foreign exchange earnings, foreign reserves and government revenue but Nigeria is a peculiar case because of the dysfunctional policies and regulations in its oil and gas sector.
“It is an irony that crude oil price increase emasculates the Nigerian economy, rather than benefit it. This is because of the escalating petroleum products and subsidy bill.
“Consequently, the fiscal deficit will be higher than projected, debt profile will increase, debt service commitment will rise and government borrowing will intensify. This may worsen an already weak fiscal space,” Yusuf said.