Africa’s Top Oil Producer Aims to Fight Soaring Inflation with Gold Reserves

Nigeria, the biggest oil producer in Africa, is considering ways to curb soaring inflation, including by giving the central bank powers to use gold to boost reserves.

Nigerian lawmakers are discussing a bill to create a so-called Gold Reserve Authority and give the central bank the powers to be the automatic off-taker for all the gold produced in Nigeria, according to a draft document seen by Bloomberg. 

Lawmakers are also proposing boosting the share of gold of Nigeria’s foreign reserves to a minimum of 30%, compared to 4% at present. 

Nigeria is heavily reliant on oil and gas for its budget revenues. So far, it has failed to boost significantly oil output to get more revenue, or to diversify its economy to make it less dependent on oil production, exports, and prices.

Inflation in the country has been running high over the last year, since Nigeria’s central bank dropped the peg of the local currency to the U.S. dollar. The Nigerian currency, the naira, has lost 70% of its value against the dollar over the past year.

Nigeria’s inflation hit a new 28-year high in May, and was at an annual rate of 33.95%, with food and non-alcoholic beverages – which make a large part of the inflation basket – the biggest contributors to inflation, as in previous months.

The IMF said in May that near-term risks in Nigeria are tilted to the downside. [if !supportLineBreakNewLine] [endif]

“Adverse shocks to oil production or prices would hit growth, the fiscal and external position, and exacerbate inflationary and exchange rate pressures,” the IMF said.

Meanwhile, Nigeria’s national oil company NNPC Ltd has declared a state of emergency on production in Nigeria’s oil and gas industry as the country struggles to boost output. NNPC believes that Nigeria needs to take urgent action to address the challenges that have plagued the oil and gas industry for years, NNPC Group Chief Executive Officer, Mele Kyari, said at an industry event last week.

By Charles Kennedy for Oilprice.com

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