Nigeria’s scorecard on macroeconomic targets remains unimpressive (II)

Assessing the second goal: Price stability

The general idea about keeping prices stable in an economy revolves around using policy instruments to protect the economy from periods of prolonged inflation or deflation.

When the volatility of prices is checked, it is easier to achieve economic stability since the economy is shielded from shocks that distort predictable trends in overall economic activity. Since price stability has the potential of raising the productive capacity of a nation, policy makers usually fix certain caps against which prices are expected to hover but for which prices may not exceed.

More often than not, price targets usually play the centre stage in determining how other economic macro variables such as employment, investment, trade, poverty, and so on behave.

The Central Bank of Nigeria has an objective inflation targeting policy as its price stability, which ensures a single-digit inflation rate of between 6 to 9 percent. If achieved, the CBN hopes that macroeconomic stability will suffice for the country.

However, data reveal that Nigeria’s current inflation rate of 17.75 percent is 8.75 percent higher than the upper limit of CBN’s target. This reality is driven by the country’s volatile foreign exchange market occasioned by frequent dollar scarcity and the depreciation of the naira, which follows. Furthermore, import restrictions with no concomitant domestic production encourage the back-door economy for smuggling activities as trafficked goods must make up for domestic production shortfall.

Read Also: Nigeria’s scorecard on macroeconomic targets remains unimpressive (I)

The CBN has submitted that inflation above 12 percent is not healthy for growth, and a price level of about 17 percent is surely not a way to go for any country that seeks to transform its economy. At the current high rate, both local and foreign investors will be averse to investing in the country since the value of their profits will be eroded by the high cost of running the business. Transferring high production costs to final consumers may also not be a viable option since higher final prices will slow demand.

Assessing the third goal: Full employment

Nigeria’s policy makers planned to keep the level of unemployment below the natural rate and increase youth participation in paid jobs that boost economic prosperity in general.

Increasing the employment rate is an essential policy programme for any government since it helps to shrink the unemployment fold and encourages increased business activities and government revenue. So far, the Nigerian experience has not shown any sign of government effort towards deepening the business environment to reduce unemployment.

World Bank estimate reveals that Nigeria’s current unemployment rate is 33.3 percent. As of December 2020, the unemployment rate stood at 27.1 percent, according to the National Bureau of Statistics (NBS). This was in part due to the volumes of job losses occasioned by the novel covid-19 pandemic. Many businesses had to either cut down on staffing, slash wages and salaries or shut down completely due to the harsh effect of the global pandemic that surprised the world.

Read Also: Nigeria’s sluggish recovery reflects weak macroeconomic fundamentals

In 2020, over 7 million more Nigerians were reported to have joined the poverty circle, and more poor citizens are being created daily. Statistics from the FDC database reveal that Nigeria has the second-highest unemployment rate in Africa, and rising youth unemployment in the country has worsened socio-economic outcomes.

Some experts also believe that the high unemployment rate in Nigeria is also caused by population explosion and poor migration control in the country. With the increased number of individuals and slow pace of infrastructure expansion and resources exploration, existing structures, resources, and capacities become under immense pressure and will not be sufficient to serve the needs of the growing population.

Bridging infrastructural deficit while creating more room for resources exploration and opportunities expansion is key to solving the unemployment dilemma that the country currently faces. Appropriate fiscal programmes that support rightful spending towards creating jobs and promoting social welfare programmes targeted towards the country’s most vulnerable citizens are also crucial efforts the government can invest in.

Assessing the fourth goal: External balance

Maintaining equilibrium in the balance of payments requires workable currency and trade policies that make it possible for a country to successfully transact its visible and invisible merchandise with the rest of the world.

Nigeria’s 2021 fiscal year’s policy programme is motivated to maintain a balance of payment surplus and positive current and trade balances, respectively.

Data from FDC show that Nigeria’s share of global exports fell drastically in 2020. While export prices declined by 22.6 percent, imports prices dropped by a slight 0.6 percent in the same 2020. Also, the country’s current and trade balance account position currently stands at -3.9 percent and -16.4 percent, respectively.

Remittances into the country have fared decently over the last ten years. Still, the government has been making more efforts to woo more foreign financial inflows through diaspora flows to households in recent times.

Realisations from the external sector still primarily suggest a porous and fragile economy. The journey towards securing a more stable external position for the country is still an arduous task since the exports sector still lags behind domestic imports of foreign merchandise.