Economic Reboot: Is It Time to Shine?

„Nigeria’s new president, less than a month away, is pushing investors to put Africa’s largest economy on a decades-long reform path, fueling excitement that money may be flowing into a country many have deemed uninvestable.” – Baba Go – Fast? Nigeria’s Tinubu’s swift reforms shock wary investors, Reuters June 15, 2023

In the last 8 years, Nigeria’s economy has stagnated and needs urgent attention. Many economic indicators, including gross domestic product, investment, international trade, the federal budget, balance of payments, employment, the stock market index and interest rates are all struggling and in need of significant support.

The primary challenge facing the economy is a debt of over 70 trillion naira compounded by high expenditure due to low revenue generation and high administrative cost.

Economists have long recognized the need to develop Nigeria’s economy. Two weeks into his inauguration as the 16th President of the Federal Republic of Nigeria, Bola Ahmed Tinubu has already received accolades from investors and corporate leaders for his decisive actions.

While we are optimistic about the future, some behavioral economists have pointed out that the success of the Tinubu administration’s policy decisions will depend on how well they align with human behavior.

He has removed some of the key drivers of the country’s economic crisis, including suspending Nigeria’s controversial Central Bank Governor Emefiele, removing expensive fuel subsidies, uprooting the high-profile EFCC chairman Bawa, signing the student loan bill and many other declines. Forex windows.

However, whether he can sustain this momentum and steer the country towards sustained economic growth throughout his tenure remains in question. Only time will tell.

President Tinubu’s recent decisions to remove fuel subsidy and overhaul the foreign exchange rate policy have drawn support from some key figures in the business and economic communities. While there were some initial concerns about the exchange rate synchronization system, those concerns seem to have been laid to rest. Now the focus is on the future and how these changes will affect the economy moving forward.

There are valid concerns about the CBN’s ability to effectively intervene in the market and stabilize it within a short period of time. To do so, the CBN must hold sufficient foreign exchange reserves to meet real and artificial demands. One proposed solution is for the CBN to liquidate its foreign exchange holdings, which will somewhat ease the pressure on available foreign exchange in the market.

While we are optimistic about the future, some behavioral economists have pointed out that the success of the Tinubu administration’s policy decisions will depend on how well they align with human behavior. One suggestion is that the CBN should keep the currency trading within a certain range and intervene if anyone trades outside that range to maintain stability and stability in the market.

In 1998, Thailand took the bold step of floating its currency, the Baht, despite its precarious economic situation. However, Nobel laureate and Hoover friend Gary S. Becker warns that developing countries should avoid free-floating exchange rates if they want to avoid economic turmoil. Under such a system, Becker argues, countries may resort to printing money to finance government spending, leading to currency devaluation and inflation.

Some experts have suggested that floating a country’s currency during a weak economy may not be the best move. However, President Tinubu’s administration must take decisive action to address Nigeria’s economic crisis while closely monitoring the impact of their policies on human behavior and the economy as a whole. It is important that the government remains vigilant and flexible throughout their tenure.

Some economists have suggested that floating currencies in a weak economy can actually encourage manufacturing and exports. However, the recent removal of fuel subsidy by the Dinubu administration has caused a fluctuation in the cost of living, while the prices of other commodities have skyrocketed. This has raised concerns that the government may increase taxes and levies that could further burden citizens already struggling with economic hardship.

In modern times, many cities face many challenges such as population growth, poverty, food and power shortages, inadequate housing and inadequate infrastructure. In addition, access to health facilities is limited and a significant number of children do not receive education due to inadequate facilities and understaffed schools.

It cannot be denied that Nigeria’s economy is in dire need of a reboot. Rising unemployment and underemployment rates have had a negative impact on households’ disposable income, leading to reduced purchasing power and employee morale. In turn, there has been a reduction in the overall output of the economy. Also, as oil production, which is the backbone of the country’s economy, has declined, there has been a shortfall in revenue. Notably, last year the government allocated a significant portion of its revenue to service debt, and experts predict that this figure will cross 100 percent this year.

However, the road ahead is fraught with challenges. Many government institutions are plagued by dysfunction, corruption is rampant, and security remains an ongoing issue. Armed groups such as bandits, smugglers and religious extremists have unbridled control over vast areas of the country. To address these issues, security reforms are necessary and the transformation of revenue-generating institutions is essential.

Tinubu’s Administration’s Policy Advisory Council has developed a comprehensive plan to boost Nigeria’s economy to $1 trillion in the next 8 years. The Council’s initiatives aim to achieve a sustainable average annual GDP growth rate of 7 percent, leading to sustainable economic expansion. However, to achieve this growth rate, the power sector needs to work effectively to improve employment opportunities. In addition, the government has to deal with rising inflation, policy uncertainties, supply chain disruptions and persistent labor market challenges.

The Office for National Statistics recently announced that the inflation rate for May 2023 will be 22.41 percent, even as the central government implements rapid reforms to revive the economy. It is important for the economic team to focus on increasing production capacity to achieve their goal. Reduces inflation.

Over the years, raising interest rates has not proven effective in reducing inflation. This raises the question whether monetary policy alone can solve the various economic challenges facing the country. It is important to remember that both fiscal and monetary policies need to be reformed to achieve positive economic outcomes. Only then can Nigeria prosper once again. Thanks.