Democracy, rising inflation and weaker economy
Over the past years, the country has witnessed varying degrees of weaknesses in the two variables, which have impacted negatively on the economic wellbeing of most Nigerians.
The fear that these major financial and economic indicators may get worse in the years ahead and thus, erode further their already poor living standards, keeps a majority of households in the country sleepless.
The other day, it was reported that a survey undertaken by the Central Bank of Nigeria (CBN) tried to elicit the opinion of Nigerians on, among other things, two critical economic and financial variables – inflation and interest rates.
According to the report, respondents were requested to indicate what they believed would happen to the Nigerian economy given increases in prices (inflation) and interest rates.
On inflation, it was stated that while 44% of the respondents saw an ensuing weaker economy, 14.2% saw a stronger economy, 18.3% believed there would be little or no impact on the economy, and 22.8% acknowledged they had no idea of what would be the impact.
As to which of price or interest rate increase would be preferred, the report indicated that 21.5% preferred interest rate hike to keep inflation down while 22.4% preferred price rise and 50.9% had no idea.
In relation to interest rate, Nigerians were asked which of increase or decrease in interest rate would be best for the Nigerian economy? 33% believed a fall in interest rate would be best for the economy, 11.1% indicated higher interest rate would be best. 12.7% believed none of increase and decrease in interest rates would cause a difference while 40.2% were not certain whether increase or decrease would be best for the economy.
The CBN’s study, according to the report concluded that the responses indicated that more respondents would prefer higher interest rates to higher inflation rate, which suggested the respondents’ support for CBN’s price stability objective.
It is good that the CBN is carrying out studies to assist in finding solutions to prevailing and foreseeable financial and economic challenges in the country. The performance of the Nigerian economy has obviously been below expectations.
Veritable expressions of that can easily be seen in the poor level of yearly Gross Domestic Product (GDP) growth (below 2.2%) and pervasive poverty that has befallen most households across the country.
Indeed, the high poverty level accounts for the country being tagged as the poverty capital of the world.
Whatever the CBN and other relevant government bodies can do to save the country’s economy from being further weakened, will be in the best interest of the nation.
Let’s not get it twisted, neither a rise in inflation rate (price increase) nor in interest rates would mean well for the economy.
Indeed, interest rates increase result in increases in costs of production, which are passed on to consumers as increases in prices of goods and services.
As the country is still operating in two digit inflation and interest rates, respectively the country’s economic managers should strive to cause the rates to strengthen from double to single digits. It is when the rates are in single digits that both costs of goods and services as well as credits will become tolerable for better and stronger economic performance.
There is hardly any doubt that the CBN has been working hard towards stabilising and sustaining prices (check-mating inflation), which is one of its primary objectives. It must, however, be acknowledged that, price stability alone cannot reward the Nigerian economy and Nigerians with a better and stronger performance, especially as the performance status of the economy is made manifest in the level of economic well-being of the people.
The prolonged retention of Monetary Policy Rate (MRR) at 14% (double digit) is an undeniable sign that the Bank has challenges dealing with inflation threats.
Now, the forthcoming national elections, the recommendation by the executive arm of government to the National Assembly for increase in the National Minimum Wage from N18, 000 to N27, 000/N30, 000 per month; the demand by Academic Staff Union of Universities (ASUU) for increase in remuneration package and allowances of its members, among other developments in the economy, the expectation is that more money will be in the hands of workers and into the economy.
And as the public sector raises its wages, the private sector operators will not go to sleep. They too will seek increase in their salaries and other benefits — after all, they buy from the same markets with their public sector counterparts.
Consequently, when approvals are made of the various recommendations and demands, more money will be in circulation with great potentials for price hikes (a rise in inflation).
To stem the fears of Nigerians on the possibility of the economy tending further downwards, this is the time for the authorities to search for, find, develop and commence implementation of uncommon/ innovative effective strategies that will not only stabilise but also lower inflation rate from its current double digit figure of over 11% (as per National Bureau of Statistics, NBS) to single digit.
Similarly, interest rates should be lowered to single digits to assist in galvanising higher level of investments, productivity and employments in the economy.
Of course, there are a multiplicity of other issues that, if significantly addressed, will aid in bringing forth desirable beneficial fruits in economic performance and hence, the living standards of the citizens. Some of them are addressing the issues of: weak or non-existent supportive infrastructure; diversification of the economy beyond the mono product oil; improvement in the ease of doing business; reduction in external borrowing; aiding the birth, growth and sustainability of Micro, Small and Medium Scale Enterprises (MSMEs); increasing local production of what is needed in the country and for exports; drastic cut in importation of foreign goods; and definitely, creation and sustenance of local and foreign investors’ confidence in the economy.
Except these and the pertinent critical inflation and interest rates issues are confronted and successfully conquered, there will always continue to be genuine concerns by Nigerians about the health of the economy and it’s consequential negative consequences for the people.
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