We are in an era of economic uncertainties that characterised the post COVID-19 pandemic. The global economy currently is in a reverse gear courtesy inflation, stock depreciation, and rising public and private debts both in developed and developing countries.
The Russia-Ukraine war that depicts persistent power in the use of strategic military weapons by the warring parties, unfortunately, is causing crunch and disruption in production chains, leading to bumps of disarticulation of goods and services. The war is also disconcerting the fragile equilibrium amid supply and demand to a soaring food and energy prices. Sadly, the alarm bells of looming food scarcity and hunger confront us all.
Instructively, developed and developing nations through the instrumentality of fiscal and monetary policies are doing everything possible to contain the imminent danger.
In this regard, central banks across the world are in the race with tightening measures to confront the qualms that envelop the global economy. This comes in orchestrated mode, by monetary authorities raising interest rates in a bid to tame soaring inflation, which, much to their dismay, continues unabated on monthly basis.
The Nigerian monetary authority, the Central Bank of Nigeria (CBN), is not left out in this economic combat – fighting inflation and other myriads challenges. However, a recent World Bank report on the CBN’s management of the economy, punctured the apex bank monetary policies and raised alarm about the huge risk to further distabilise the anticipated economic growth.
The Washinton based global lender revealed this in its “Nigeria Development Update (June 2022): The Continuing Urgency of Business Unusual”. This neoliberal institution was very direct as it condemns the CBN policies on multiple exchange rates, trade restrictions, and financing of the public deficit as the reasons behind the poor business environment in the country.
The World Bank said the CBN measures are “business-as-usual policy stance that hinders prospects for economic growth and job creation”.
Before and after the COVID-19 pandemic, the Nigerian apex bank as a shift in monetary policy measures to grow the economy adopted the “Heterodox monetary strategy”. Heterodox monetary stance in the thinking of the apex bank managers would ensure steadfastness to correct valuation of the naira under transparent exchange rate regime, improve export earning as well as price stability and employment generation.
In what looks more damaging to the CBN’s efforts, the World Bank said the “Central Bank of Nigeria’s development finance intervention is fuelling inflation in the short term and weakening the ability of the apex bank to control inflation”.
From the foregoing, we can dissect the concerns of the World Bank. Nigeria’s economy is struggling and the naira has come under the weight of foreign currencies. The growth rate declined by -1.8% in 2020, grew by 3.4% in 2021 and is projected to maintain the pace with 3.11% Q1 2022. The economy endured a high inflation rate of 15.9% in March 2022 and a high unemployment rate of 33.3% Q1 2022.
The naira depreciated from N360/1dollar in 2019 to N580/1dollar in 2022 with parallel market exchange rate falling by 61%. Te national reserve decreased to $39 billion as of April 2022. Inflation has gone up by 39.5%. In the same vein, external and domestic debt stocks continue to fluctuate between $38 billion and $45 billion since 2019 till date.
The bank said “Notably, during 2020 and 2021, when oil prices were much lower, the government lost an opportunity to address one of the primary sources of fiscal vulnerability by choosing to maintain the subsidy for premium motor spirit, more commonly known as petrol—a subsidy that is unique, opaque, costly, unsustainable, harmful, and unfair.”
Nevertheless, the global lender recognises the significance of the CBN intervention “programmes to support micro, small, and medium enterprises is a priority to protect viable and vulnerable MSMEs against rising uncertainty”
But what exactly is the rationale behind the World Bank’s criticism of the CBN policies and the Nigerian state non removal of subsidy. Although, the World Bank has been the custodian of neoliberal orthodox economic practices since the 1970s, its various prescriptions on global economies, notably, inform their loans and financial initiatives.
Nigeria’s experience with the World Bank dates back to late 1980s, where it diagnosis Nigeria’s economy using the neoliberal lenses. Thus, the World Bank picking holes in CBN heterodox policy at this point is not surprising, considering refusal of the apex bank to devalue the naira and its opposition to subsidy removal.
Nonetheless, Nigeria’s economy is not appreciating, and this as a result of the structural deficits of many years.
So, what could be the way out, because World Bank report has not said anything new; we are witnesses to the pathetic economic reality. As it stands, the CBN must keep its goal to support the real sector for economic growth.
The CBN should not to lose focus in addressing micro and macroeconomic vulnerabilities pushing millions of Nigerians into extreme poverty.
Late Sir Henry Boyo’s objective suggestion on saving the naira through “liberalisation of the foreign exchange market and the introduction of dollar certificates as payment to statutory beneficiaries” is apt.
This in his view would critically help in not just taking away the pressure on the naira, but also stabilise and accumulate foreign exchange revenue from crude oil.
Olamilekan, political economist and development researcher, writes via [email protected]; 08107407870, 08073814436