The Financial Reporting Council of Nigeria (FRC) has rejected the suggestion that Nigeria is a hyperinflationary economy as outlined by the IAS 29: Financial Reporting in Hyperinflationary Economies standard.
The FRC stated that while IAS 29 provides accounting requirements for hyperinflationary economies, it does not specify when hyperinflation arises but lists indicators such as a preference for non-monetary assets, pricing in stable foreign currencies, and a cumulative inflation rate approaching or exceeding 100% over three years.
In a statement signed by DR. Rabiu Olowo, the executive secretary/CEO, the FRC emphasized that Nigerians continue to transact in local currency and invest in Naira-denominated assets, indicating confidence in the local currency.
Investment in monetary assets increasing
“There is no indication that the general population prefers to keep its wealth in non-monetary assets or in any other relatively stable foreign currency,” the FRC stated. They further noted, “Data from the Central Bank of Nigeria (CBN) and the financial statements of Nigerian financial institutions continue to show that investment in monetary assets such as treasury bills, mutual funds, fixed and current deposits, and other short-term monetary assets have been increasing over the last three years,”
Additionally, data from the National Pension Commission shows an increase in pension assets, predominantly held in monetary assets, totalling N22.25 trillion as of November 2024 compared to N18.35 trillion in December 2023.
The Council countered claims that credit purchases are adjusted for inflation, stating there is no evidence that credit transaction prices compensate for expected inflation losses. The FRC highlighted that credit terms are based on contract terms, business risk appetite, and customer risk profiles.
“There is no evidence that the price of credit transactions is adjusted for inflation as sales and purchases on credit do not take place at prices that compensate for the expected loss of purchasing power during the credit period.”
What you should know
- While acknowledging Nigeria’s three-year cumulative inflation rate of 110.9% as of December 31, 2024, the FRC noted that this rate exceeded the IAS 29 threshold.
- However, the Council pointed out a marginal decline in the month-on-month inflation rate in July 2024, and the International Monetary Fund (IMF) projects Nigeria’s inflation rate to stabilize at 21% by the end of 2025.
The FRC, a Federal Government regulatory agency established under the Financial Reporting Council of Nigeria Act 2011, is responsible for issuing and enforcing financial reporting and corporate governance standards across public and private sectors in Nigeria.
