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With Nigeria’s Gross Domestic Product shrinking by 2.06 per cent in the second quarter of the year, economic analysts has said the fiscal authorities should strive towards growth as foreign investors will not invest in an economy that is not growing.
Nigeria is currently facing stagflation as the receding economy is accompanied by a rising inflation which was put at 17.9 per cent in September by the National Bureau of Statistics. The Monetary Policy committee of the Central Bank of Nigeria had at its last meeting maintained the interest rate at 14 per cent in its efforts to pull in investors.
According to the governor of the CBN, Godwin Emefiele, the increased Monetary Policy Rate (MPR) two meetings ago was designed to attract portfolio investors and drive an inflow of foreign exchange to reduce the pressure on the naira and prices.
While there had been some inflows, it had not been enough as the value of the naira had depreciated to almost N500 to the dollar at the parallel market. Speaking on the sidelines of a workshop on economic analysis organized by the West Africa Institute for Financial and Economic Management (WAIFEM) in Monrovia, Liberia, Mr Ismaila Jarju of the West African Monetary Institute noted that raising interest rate is not enough to bring in foreign investors.
According to him, nominal interest rate, must be higher than inflation for real interest rate to be positive enough to attract foreign investors. Real interest rate is the gain left for investors when their profits are adjusted for inflation. With MPR at 14 per cent and Treasury Bill rate hovering between 17 and 18 per cent, an inflation rate of 17.9 per cent leaves the investor with little or negative interest rate.