The Governor of the Central Bank of Nigeria, Godwin Emefiele and Turkey’s President, Tayyip Erdogan, seem to have something spectacular in common: making unconventional economic decisions without borrowing caution from the sea of experts that surround them.
Last month, Nigeria’s inflation rate reached new record highs, as the National Bureau of Statistics reported July 2022 inflation figure to be 19.7 per cent year-on-year. Compared to a year earlier, the new figure represents a 2.27 percent jump from July 2021’s 17.38 percent rate.
This means that, on average, Nigerian’s purchasing power has declined by that incremental factor just within a year, and they must either spend more this year to enjoy the same level of satisfaction they had last year or altogether recalibrate their spending schedule now to maintain their previous year’s living standard. Either way, consumers are worse off when inflation shows its ugly face.
Mr Emefiele’s decision to drive up interest rates in response to soaring prices has led to yet more depressing outcomes in the real economy. Many critics of his administration have warned about his poor policy choices and his disdain for facing the country’s currency dilemma headlong.
Perhaps, Mr Emefiele may have hired the Turkish president as his private economic policy adviser since his policy choices seem to always flow in the opposite direction to what should have been hitherto pursued, as is the case of Mr Erdogan.
Turkey’s current inflation rate is about 80 percent. While this staggering price level may have been fuelled by instances such as excessive capital account deficit and large foreign currency-denominated private debts, many believe that the emerging economic woes are largely caused by the president’s authoritarian style of government and his unorthodoxy in economic policy management.
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Turkish Statistics Agency has reported that annual growth in the nation’s general prices rose from 73.5 percent in May 2022 to 78.6 percent in June. Many economists within the Turkish domain have blamed the price increases on the hike in oil and gas prices.
In response, the government has resorted to lifting the monthly salary of about 40 percent of the nation’s workforce from $254 to $328. Meanwhile, in Istanbul, the state’s chamber of commerce has reported that inflation in the country’s largest city has peaked at an annual rate of 94 percent.
More revealing is the figure released by an independent Turkish economist group, whose claim on actual inflation figures largely departs from what the government’s official sources say. According to the group, consumer prices were reported to rise by 175 percent in June 2022, compared to a year before.
These episodes of aggravated prices can be traced back to the economy’s experiences during the European debt crisis in 2012 and a subsequent threat of higher interest rates by the US Federal Reserve in 2013. These combined have humbled the appeal of the Turkish lira and the value of the same has remained submerged.
In 2018, Erdogan embarked on a “new economic model” as a strategy to see a comeback in the value of the domestic currency. This strategy, however, required setting aside rising inflation and focusing on cutting down rates instead in the hope that economic growth would respond positively.
This idea was contested by the central bank chief, but resolute and unflinching about his idea, the president maintained his ground. As a result of the low-interest rate policy amid the climbing inflation rate, the lira plunged to record lows, thus pushing costs further northwards. This is especially sad for a country that depends heavily on energy imports and other materials.
Exacerbated by the Russia-Ukraine war, energy and food prices in Turkey have spiked to unbelievable heights. An inflationary spiral, which was precipitated by a series of interest rate dwarfing as ordered by the president in the hope that monetary stimulus would boost investments and exports, had returned with a lira curse. As a result, import prices have ballooned and the nation’s citizens have been thrown into an era of unnecessary hardship.
Nigeria’s story is not too different from Turkey’s. Both sovereign beings in their different capacities seem to care less about the ridicule they have caused their economies by pursuing sub-optimal policies under the pretext of trying to promote growth and currency stability.
Nigerians have now resorted to lean budgets and postponed gratifications to accommodate the new reality that befalls them. All within policy watch, the situation does not seem to get better.
Perhaps, policymakers should be more strategic in making plans that have more impressive medium to long-term effects rather than just thinking around their nose lengths. Indeed, impressive short-term plans are necessary to achieve some economic adjustments wherever possible, but longer-term policies serve more persistent corrective roles that detail deeper into several sectors (almost) simultaneously.
More importantly, however, policy choices – whether short, medium or long term – should be appropriate for the situation, timely actioned and well representative of the country-specific identities for which they were created or chosen in the first instance.
