By Shamsiyya Hamza Ibrahim
As the Nigerian economy battles the trinity of high inflation, increasing unemployment, and slowing economic growth, its journey has been made more complicated by the removal of subsidies on fuel in 2023 and the recently adopted floating exchange rate.
Now that the idea of unifying various foreign exchange rates has been tried, the debate on the state of the economy is focused on what other options are left for Nigeria.
Kasimu Garba Kurfi, an economic analyst, believes that the primary cause of instability in the Nigerian economy is the funding of federal government expenditure.
"Spending over 23 trillion naira by printing currency beyond its bandwidth has contributed to inflation of almost 29%, which is the highest in over 15 years," he tells TRT Afrika.
Unifying exchange rates also led to the devaluation of the naira, the worst-performing currency in Africa in 2023, according to the World Bank.
Budgeted shortfall
The federal government has been running on deficit budgets over the past five years, compounded by the lack of revenue generation to meet budgeted expenditures.
This has led to heavy borrowing, raising the country's total debt to over eighty-seven trillion naira (N87tr). Nigeria’s economy heavily relies on oil revenues and the country is a key member of OPEC.
Despite the government's efforts to curb economic sabotage through legislation, crude oil theft has persisted, resulting in failure to meet its OPEC allocation targets.
"Consequently, there has been a shortfall in generating enough US dollars to meet domestic demand, leading to further devaluation of the naira," Dr Isa Abdullahi, head of the economics department at the Federal University in Kashere, Gombe State, tells TRT Afrika.
Another factor, he points out, is the closure of oil refineries. "This leaves us with no option but to import refined petroleum products for local consumption."
Preferred solutions For a start, experts say the way out of the morass is to stop funding federal government expenditures through "ways and means", a term denoting the system of meeting mismatches in receipts and payments.
Increasing crude production, especially in the Niger-Delta region, to meet OPEC allocation targets and domestic demand is another suggestion offered by economists.
Local refineries swinging back into production mode could shore up the country's dollar reserves and reduce dependence on refined petroleum imports.
Manufacturing industries should get priority in the allocation of dollars to offset letter of credit matured obligations by the Central Bank of Nigeria (CBN), besides discouraging companies from closing.
The mining and agricultural sectors should get the government's undivided attention, to help them generate more foreign exchange through exports.
Tackling corruption and maintaining a single exchange rate should also be on the government's to-do list, say experts.
Dollarisation dilemma
The Nigeria is heavily dependent on imports fuelled by "dollarisation," which economists have long been cautioning the country against. The American dollar is a legal tender in Nigeria, enabling cash transactions in that currency which contributes to weakening the local currency, naira.
Many see this as the bane of economic growth and price instability, which comes with attendant inflationary pressures traceable to factors such as inconsistencies in policy-making and implementation.
"Price stability is vital to economic activities as it promotes demand of products and services, which in turn spurs economic growth and boosts the purchasing power of consumers," Kurfi tells TRT Afrika.
"For example, the sudden spike in the price of petrol has caused many Nigerians to abandon their vehicles, thereby resulting in a sharp decline in demand for fuel."
A lack of official price control also brings about exploitation by sellers and suppliers. "An efficient blend of effective monetary and fiscal policy management and financial accountability are key elements to stabilise Nigeria's economy," says Dr Isa.
Lifting or relaxing forex restrictions like interbank forex inflow transfers could ease pressures on forex, also reducing the high cost of capital through single-digit interest rates for agro-allied industries and other vital sectors."
President Bola Ahmed Tinubu has pledged to enhance the influx of foreign currency into Nigeria through initiatives such as attracting new investments, increasing oil production, and reforming the foreign exchange market.
Generally, global commodity prices greatly influence countries' terms of trade, and Nigeria is no exception.
➤Click here to follow our WhatsApp channel for more stories.
