Home' Trinidad and Tobago Guardian : January 7th 2016 Contents Africa s biggest economy Nigeria, battling a revenue
shortfall caused by the global oil shock, does not need
assistance from the International Monetary Fund, the
group s head said on Tuesday.
"Let me be very clear: I m not here nor is my team
here to negotiate a loan with conditionalities, we re
not programming negotiations," said IMF managing
director Christine Lagarde.
"Frankly, given the determination and resilience
displayed by the presidency and his team, I don t see
why an IMF programme is going to be needed," she
told reporters in Abuja.
Lagarde was speaking after meeting President
Muhammadu Buhari on a four-day visit that will also
see her hold talks with the central bank governor and
visit neighbouring Cameroon.
Nigeria, Africa s number one oil producer, has seen
revenues dive over the last year because of the fall in
global crude prices, causing a cash crunch that has
forced it to tighten spending.
The naira currency has also slumped and GDP
growth stalled to under 3.0 per cent, while inflation
is nudging 10 per cent.
Lagarde described the talks as "excellent" and said
they touched on "the challenges ahead stemming
from the oil price reduction" and the need to find
different revenue sources.
They also discussed "the necessity to apply fiscal
discipline and the need to respond to the population s
needs, improving the competitiveness of Nigeria and
focusing on the short-term fiscal situation".
Buhari has made reviving the flagging economy
one of his key priorities alongside cutting endemic
corruption and government waste, and improving
transparency and accountability.
Lagarde said they were "very ambitious goals that
need to be delivered upon."
Nigeria last month unveiled a 6.08-trillion-naira
(about US$30-billion, 27-billion-euro) budget, increas-
ing investment on capital expenditure to stimulate
growth and lower dependence on crude exports.
Lagarde said it was not her place to "approve or
comment on the budget" but she disclosed the IMF
would undertake a review and audit from next week
"to really assess whether the financing is in place".
It would also look at "whether the debt is sustain-
able, borrowing costs are sensible and what must be
put in place in order to address the challenges going
Analysts say the commercial health of the region
is a priority for Lagarde s trip, with Nigeria struggling
to adapt to rock-bottom oil prices and diversify its
She is due to end her trip by meeting finance min-
isters from the six member countries of the Economic
and Monetary Community of Central Africa (CEMAC),
delivering a speech on January 8.
"There was mention of the reform agenda, what
Nigeria might do to cope with this period of oil price
weakness, but also the policy response from Nigeria
and the impact on surrounding countries," said Razia
Khan, Africa economist at Standard Chartered Bank
BUSINESS GUARDIAN www.guardian.co.tt JANUARY 7 • 2016
Ever since the financial crisis
of 2008, forecasters have
scanned the horizon for the
next big disruption. There
are plenty of candidates for
China s economy, whose might acted as
a counterweight to the slump in the rich
world in the years after the crisis, now is
itself a worry. Other emerging markets,
notably Brazil, remain in a deep funk. The
sell-off in the high-yield-debt market in
December has prompted fears of a broader
repricing of corporate credit this year.
One worry is absent, however: financial
markets are priced for continued low infla-
tion or "lowflation." A synthetic measure,
derived from bond prices, puts expected
consumer-price inflation in America in five
years time at around 1.8 per cent. That
translates into an inflation rate of around
1.3 per cent on the price index for person-
al-consumption expenditure, the measure
on which the Federal Reserve bases its 2.0
per cent inflation target.
Ten-year bond yields are at only 2.3 per
cent in America, and are below 2.0 per cent
in Britain and below 1 per cent in much of
the rest of Europe. The price of an ounce
of gold, a common hedge against inflation,
has fallen to US$1,070, far below its peak
in 2011 of US$1,900.
Market expectations often are confounded,
however. Economic recoveries are maturing.
Labor markets are tightening. Could inflation
be less subdued than expected in 2016?
Rich-world inflation currently is depressed
because of temporary influences. In America
the PCE index rose by only 0.4 per cent
year on year in November---but that is in
large part because of a sharp fall in con-
sumers energy prices in early 2015, which
soon will drop out of the annual comparison.
The core measure, which excludes food and
energy prices, has been stable at 1.3 per cent
for months. It might also be somewhat sup-
pressed by the sharp fall in oil prices, which
has held down the cost of producing other
sorts of goods and services.
An analysis by Joseph Lupton of JP Mor-
gan suggests that core inflation worldwide
has crept up to 2.3 per cent, a rate that rarely
has been exceeded in the past 15 years. In
large emerging markets, including Brazil,
Russia and Turkey, core inflation is above
the central bank s target.
In the view of some, lowflation is a relic
of the past. Even the euro zone is recovering
from its prolonged recession, and the busi-
ness cycle in other rich economies is more
advanced. The debt hangover that has trou-
bled them for almost a decade has faded.
Job markets also are much tighter than
they were a few years ago, when deflation
was a serious concern.
Unemployment in America has fallen to
5.0 per cent, a rate which is close to many
estimates of full employment. The jobless
rate in Britain is 5.2 per cent. In Germany
it is 6.3 per cent.
If the recent trend of low productivity
growth in these economies continues, bot-
tlenecks in the jobs market will emerge and
higher inflation may not be far behind. For
instance, if America s GDP grows by 2.3 per
cent in 2016, its recent average, and growth
in output per worker also matches its recent
sluggish trend, the unemployment rate
would decline further, to around 4.0 per
cent, Lupton reckons. The lower the jobless
rate goes, the more likely it is that wages---
and eventually inflation---will pick up.
As rich countries were wrestling to reduce
their debts, emerging markets went on a
credit binge for which the reckoning is only
beginning. Debt in China in particular has
risen sharply relative to GDP since 2008.
Some of the resulting stimulus went into
factories, leading to overcapacity and falling
global prices for various goods from steel
to solar panels.
Much of China s debt went to finance
housing and infrastructure, however, rather
than its export capacity. Moreover, the Chi-
nese authorities desire to avoid big down-
ward lurches in the yuan ought to minimize
the risk that it will export lowflation to the
rest of the world.
Nonetheless, the expectation projected
by bond markets---that lowflation will per-
sist---has sound underpinnings.
For a start, the price of oil and other com-
modities does not yet seem to have reached
bottom. The price of a barrel of oil fell to
an 11-year low of less than US$36 before
Christmas, before rallying a little on hope
of renewed stimulus in China.
Saudi Arabia is pumping at close to capac-
ity, in an effort to force out high-cost pro-
ducers such as America s shale-oil firms
and thus grab a bigger slice of the global
The strategy has had some success. For
instance, the number of oil rigs operating
in America has fallen from around 1,500 a
year ago to only 538, according to Baker
Hughes, an oil-services firm. Oil production
in America remains at more than nine million
barrels a day, however, and Iran s exports
are likely to increase in 2016, thanks to the
lifting of Western sanctions. For the time
being, the oil market heavily favours buyers
Where inflation can be found in the world,
it is not obviously a function of capacity
constraints. The larger economies in which
core inflation is above the central bank s
target tend to be commodity exporters that
have suffered big falls in their currencies.
That, in turn, has stoked domestic inflation.
Core inflation typically is well below target
in countries that are importers of raw mate-
Despite tighter labour markets in rich
countries, wages are not rising very fast.
That might in part be because of low expec-
tations of inflation.
It seems likely, also, that the debt burden
in emerging markets, and the slower growth
that usually comes after a credit binge, will
bear down on global prices for a while. Even
if China s spare capacity is not fully
exportable, plenty of other emerging markets
have built mines and factories in expectation
of higher Chinese growth that now will
As nervous investors creep back to the
comparative safety of developed markets,
the upward pressure on big currencies,
notably the dollar, will increase---adding to
downward pressure on local prices.
As was the case in the late 1990s, rich-
world policy-makers will find that they have
to keep their domestic economies primed
with low interest rates to offset disinflation
from abroad. The strong dollar already has
caused a split in American industry between
strong services and weaker manufacturing.
Lopsided economies may prove as hard
for policy-makers to steer as deleveraging
Lagarde: No IMF
needed for Nigeria
Low for longer
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