As the world’s major central banks continue to adopt a tightening stance (hiking interest rates) in their bid to curb the spiraling inflation fueled by the Ukraine war, the Chief Executive Officer, Financial Derivatives Company (FDC), Mr. Bismarck Rewane, has said that the development could impact some economies negatively, as it could lead to a decline in Diaspora remittances, higher debt service costs and increase in cost of financing trade transactions. Rewane, who stated this in his presentation at the Lagos Business School (LBS) Executive Breakfast Session in Lagos, recently, also noted that higher interest rates could result in increased savings and lower consumption levels.
He stated: “Central banks are becoming more aggressive in the fight against inflation. U.S. inflation down to 8.3 per cent in April, but still higher than its two per cent target. 18 out of 21 countries have raised interest rates so far in May.” Specifically, on how higher interest rates will impact diaspora remittances, the FDC boss noted that “Nigeria’s Balance of Payments (BOP) gap has mostly been bridged by Diaspora remittances.” According to him, Nigeria’s Diaspora flows have been falling due to “exchange rate misalignment and higher interest rates in advanced economies.” New Telegraph recently reported that the World Bank’s latest “Migration and Development Brief,” which was released last week, shows that remittance inflows from Nigerians in the Diaspora rose by 11.2 per cent to $19.2 billion in 2021 from $17.21 billion in the previous year.
The World Bank also disclosed that remittance inflows jumped 14.1 per cent to $49 billion in sub- Saharan Africa in 2021 — “more than erasing the falloff of 8.1 per cent recorded in the prior year and representing the strongest gain since 2018.” According to the Bretton Woods institution, “factors supporting a return to growth included economic activity in Europe and the United States, which remained firm, and a restoration of recorded inflows to Nigeria, which had slipped by about 28 per cent in 2020 due to increased use of informal channels.
Recorded flows to Nigeria advanced by a healthy 11.2 per cent in 2021 to $19.2 billion, while flows to Sub-Saharan Africa excluding Nigeria surged 16 per cent to $30 billion in the year.” Similarly, the Multilateral Development Bank stated that remittance flows to Lowand Middle-Income Countries (LMICs) registered a robust gain of 8.6 percent to reach $605 billion in 2021.