By Adefolarin A Olamilekan
The global economic as of today is in great need of resetting. If not, we are not far away from another earth shaking world economic meltdown.
Why am l saying this,readers of this column should bear it in mind.That the outlook of global economic growth and development is still envelop with uncertainties of post COVID-19 pandemic.
For instance the growth in economics is not measurable with trending reality of mass poverty,hunger,job cutt and surging cost of living.
Regreattably, the global economic environment is grappling with inflation.The rich and developed countries are not spared.So much so the poor,developing and underdeveloped nations are counting losses.
In short, United State of America,United Kingdom and other Western European Nations economics policy.As been overtaking with contraction in the system.
Therefore making their economic policy just good on paper at this point.
The US in particular being the world largest and developed economy in the last three months continuels to take cautionary measures.So that businesses, investments and livelihood of citizens would not be eroded.
However, fingers are been pointed at the Ukrain- Russian war as drivers of the current global economic woes.
Critically, we cannot also rule out the greed of global capitalism not just the war in Eastern Europe as responsible.
Interestingly, two breaking news in Nigeria in recent time. Was about Nigeria’s Gross Domestic Product (GDP) that grew by 3.11% (year-on-year) in real terms in the first quarter of 2022.
And the second is the CBN’s new Interest rate hike after six years to 13% from 11.5% a 150bps increase.
Both development actually attract reactions from several experts. Suggesting,we are in for a big deal of economic turn around,if managers of our economy do it rightly.
Nonetheless, the concerns on this economic reports arose some thought provoking questions.
As in what is the reality of the current GDP growth of 3.11% in relation to concret measures of better life of Nigerians?
Another is what are the risk associated with interest rate hike in Nigeria in this period of galloping inflations?.
A summary of the National Bureau of Statistics (NBS) released Gross Domestic Report, indicated that
Q1 2022 growth rate was higher than the 0.51% growth rate recorded in the corresponding period of 2021 by 2.60% points and lower than 3.98% recorded in Q4 2021 by 0.88% points.
Chiefly, from a real terms, the non-oil sector contributed 93.37% to the nation’s GDP while the oil sector accounted for 6.63% of the GDP in the review period.
We must however,appreciate the non-oil sector responsible for the growth that includes Information and Communication (ICT); Trade; Financial and Insurance: Agriculture; and Manufacturing.
On the other hand the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) voted to hike intrest rate to 13 percent to tame rising inflation.
According to Godwin Emefiele, governor of the apex bank six out of eleven committee members voted to raise the key rate.
He added that “while it may seem contradictory to raise rates in the face of fragile growth, it is a dilemma that most central banks around the world today are grappling with at this time. On balance, it is quite clear and compelling that attacking inflation is more urgent in the sequence of policy objectives in this regard.”
Succintly,this new rate show the CBN change from its heterodox stance on monetary policy to a hawkish attitude.
The apex bank chief allude that “to reduce inflationary pressure, CBN decided to take a shift on historical stance on monetary policy rate.”
Instructively, major Central banks across the globe reportedly adjusted their rate reseason be the sharp rise in “inflation driven by rising demands and wage bills”
Unfortunately, for Sub- Sahara African country like Nigeria that survive on petro dollar revenue.Equally at the same time is an import dependent market economy.
A lots of contradiction is expected to take centre stage both on the macro and micro economics sectors as a results of hike in rate. And we are going to feel this both from the negatives and positives. Even as the negatives outweight the positive as a results of our economic structural deficiency.
Meanwhile, risks such as a slowing down of the manufacturing and productive sectors that depends on loans and borrowing from banks.Have to be acknowledge from the fact.That cost of bank loans would hit the roof top due to interest payment and other charges. This would be followed by challenging impact on disposable income.
Significantly,people that are good at saving money as well as investors in stock are joyous at the news of hike in interest rates.This is consider as best match to cure inflation. Especially with the inflow of FDI and Foreign Portfolio into the Nigerian environment. Arguably, FDI are “Hot Money” flow that can create volitality in stock and capital market. We must be cautious about it alongside other related challenges.
Foremost, fear of hike rate is it consequent that may lead to GDP decline growth. And for us this our much celebrated sixth consecutive quarter of positive growth of Nigerian economy on paper. In reality would just remain ‘Anaemic’ in nature.With no tangible or real impact to better the life of Nigerians.
Nonetheless, we appreciate the move by CBN to lessen inflationary opressures and attempt to reduce naira rate of depreciation. This also follows the apex bank march toward boosting Nigerian asses to attract foreign investors and stimulating capital inflows to sustain the naira.
Essentially, as we concludes,the CBN interest rate hike tend to have followed global trends. Poignantly, the apex still have a lot to do to fight inflation,this its must be guarded to do.
Going forward our modest recommendations as to what need to be done.In particularly,is to redouble effortgovernment effort to strenghten domestic economy. That require the federal,state and local government.To put in place a strategic economic policy that are not just cosmetic in tackling our structural deficits.
In addition, Nigeria government must rethink its fiscal and monetary expansionary policies so as to move beyond anaemic GDP growth.For us it time to stop throwing money at national problems in the name of empowerment or poverty alleviation.
Lastly, the nations economic drive toward none oil sector growth must be sustained.And this must be done in clarity,relevance and provision of critical infrastructures.That would make government engaging and business like.
