The United Nations has revealed that the Nigerian economy has been crippled by the shortage of naira in recent times especially the informal sector.
This was revealed in its ‘Trade and Development Report Update; Global Trends and Prospects (April 2023),’ report produced by the United Nations Conference on Trade and Development.
The UN disclosed that the informal sector felt the brunt of the scarcity the most. Additionally, the continuing decline of oil production is expected to impact the country’s finances in 2023.
UNCTAD provided more insight into the situation in Nigeria, saying, “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 African economy is projected to expand by 2.5 per cent, which is a drop from the previous year and insufficient to reduce poverty levels on the continent.
The UN noted that this is largely due to weaker external demand and tighter financial conditions. According to the organisation, weaker external demand and tighter financial conditions are contributing factors to the situation.
In early 2023, half of African countries recorded double-digit inflation, putting many African economies at risk of stagflation in 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,” according to UNCTAD.
The UN expressed concern over the level of public debt in many African countries. Out of the 38 African countries that are part of the Debt Sustainability Framework of the IMF and World Bank, 8 entities are already in debt distress, and 13 are considered at high risk of distress.
It stated, “Public debt, in many cases standing at levels not seen since the early 2000s, is another worry across the continent. Out of the 38 African countries that are part of the Debt Sustainability Framework of IMF and World Bank, 8 entities are already ‘in debt distress’, while 13 are considered ‘at high risk’ of distress.”
The UN agency also highlighted that many African economies are approaching a maturity wall as maturities on international bonds issued in the previous decade peak in 2024 and will remain elevated for the next decade, with most governments unable to tap international capital markets to roll over maturing debts.
The UN agency also cautioned that risks remain tilted to the downside. The rising domestic cost of living and a deteriorating security situation remain of key concern in many parts of the continent. Additionally, more than 116 million African people are currently in acute food insecurity, according to the latest projections of the WFP and FAO.
Despite the challenging economic environment, the UN revealed that the Nigerian economy is expected to grow to three per cent in 2023 due to its commodities trade and consumer goods and services markets.
