Management of Nigerian Economy: Staying the Course but Pausing to Reflect
Hafiz Bakare The Nigerian Government has taken a number of policy decisions in the last 18 months, mainly fuel subsidy removal and floating/unification of the exchange rate, with subsequent dire
In the past 18 months, the Nigerian government has implemented several economic policies, including the removal of fuel subsidies and the floating/unification of the exchange rate. These decisions have had significant consequences on the purchasing power of the people due to high fuel prices and the impact of currency devaluation.
Despite the recent opening of the Dangote Refinery, expectations of a reduced fuel price have not materialized, primarily because of the persistently high exchange rate. The relationship between the exchange rate and domestic inflation in Nigeria is well-established, and as long as the exchange rate remains high, inflation will remain high.
The Central Bank of Nigeria (CBN) has focused on controlling inflation by increasing the Monetary Policy Rate (MPR) significantly, which has further contributed to the high cost of credit and economic stagnation. The author suggests pausing and reflecting on these policies, considering the following points: the exchange rate's considerable high value, inadequate foreign exchange supply, and the impact of domestic Dollar-denominated bond issuance on the exchange rate.
The author concludes by stating that the future trajectory of the exchange rate over the next six months to one year will depend on decisive measures to boost foreign exchange supply.
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