Emerging and frontier economies need to understand the risks posed by the eventual end of the U.S.' asset purchasing program, the Governor of the Central Bank of Nigeria warned, arguing that weaning the markets off the stimulus would be like overcoming a drug addiction.
Lamido Sanusi told CNBC that Nigeria had "bought some time" and had "a very short window" within which to fix and reform aspects of its economy so that it was ready for the U.S. Federal Reserve to start tapering off its monthly $85 billion bond purchases.
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"It's extremely important, I think, to recognize that this is short term," Sanusi said, referring to the U.S.' stimulus program. "And there is a big risk that it can go on and the markets get used to it. It's like a junkie on drugs, basically getting the market off this market is going to be problematic."
He said it was important for emerging and frontier economies to understand the risks, "and to recognize that while these flows have been important…for us, for example in keeping exchange rates at a time when we've got depleting fiscal savings, the financial markets remain very vulnerable and fragile."
Sanusi added: "If there is a change in monetary policy, as will happen in Europe and America, and you have a reversible of capital flow, there will be an impact."
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Nigeria, Africa's most populous country with 170 million people, is one of the fastest growing economies in the world. According to the country's National Bureau of Statistics, gross domestic product (GDP) rose 6.81 percent on an annual basis between July and September, compared with 6.18 percent in the second quarter.
The International Monetary Fund's (IMF) forecast for Nigerian GDP currently stands at 6.2 percent growth for 2013 and 7.4 percent for 2014. The country's inflation fell to a five-year low of 7.8 per cent in October.
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Sanusi said Nigeria is in a stable position, having built up its foreign external reserves to around $45 billion. But he warned that a shock tapering of quantitative easing in the U.S., or an increase on rates from the Bank of England could destabilize the system and put pressure on the country's reserves.
"The only reason we've built up reserves is because we've been able to attract portfolio flows into the economy and this has reduced the demand for an exchange from the central bank," Sanusi said. "So we halted a large chunk of central bank reserves that we've not used to support the currency and to finance imports."
He added: "Now, portfolio flows are contingent on our ability to maintain stable exchange rates and give proper risk adjusted returns on the fixed income market."