Despite rising inflation and unemployment, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has, once again, retained the monetary policy rate and other key parameters. It was expected that the MPC at its recent meeting would have reduced the interest rates as well as review downward the Cash Reserve Ratio (CRR) to enable banks advance more credits to stimulate economic activities and productivity. Reduction of these key parameters would have been in line with development in emerging economies, where governments with rising inflation and falling exchange rate, have reduced their interest rates. But instead of doing so, the CBN retained the monetary policy rate.
With the retention of the monetary policy rate, the economy is likely to witness some challenges. According to figures released recently by the National Bureau of Statistics (NBS), the Consumer Price Index (CPI), which measures inflation, increased to 12.56 per cent (year-on-year) in June, compared to 12.40 per cent in the preceding month of May. This is the highest recorded in 10 consecutive months. It is worrisome that the inflation outlook for the rest of the year would be influenced by two main factors: the elevated base effect and the decline in household incomes. This means that the monetary authorities will be dealing with the negative Gross Domestic Product (GDP) for the second (Q2) and third quarters (Q3) of the year and rising inflation.
With real per capita GDP growth forecast to be negative in all sectors in 2020, poverty will likely deepen for the already poor, while those already above the poverty line prior to the outbreak of COVID-19 pandemic will likely fall into extreme poverty. This, according to the International Monetary Fund (IMF), may worsen Nigeria’s economic problems especially in the area of job creation. Due to the coronavirus pandemic, unemployment is projected to reach as high as 35 per cent of the active population. The consequences could be very disturbing if urgent steps are not taken to tame the situation through massive job creation.
Government should provide fiscal and monetary measures to check rising inflation and unemployment. The challenges of the agricultural sector, including inactive research institutes, poor infrastructure, poor and inconsistent policies and low funding, must be fixed.
Sadly, the current production level in the agriculture value chain is too low to meet the ever-increasing demand of the nation’s growing population, which is outpacing economic growth rate. The farmer/herder clashes across the country will continue to have negative impact on food production. The recent hike in Value Added Tax (VAT) to 7.5 per cent from five per cent may further fuel inflation rate.
Therefore, we urge the federal and state governments to address the rising costs of goods and services. We think that inflation will continue to rise; perhaps more than the current 12.13 per cent if nothing is done to curb it.
The present surge in the headline inflation should be taken as a wake-up call for the monetary authority to stabilise prices and set inflation ceiling. We believe that everything must be done to either reduce the inflation rate or keep it at the CBN’s target of nine per cent. Anything above this ceiling will not augur well for the economy. There is also need for more investments in small businesses. We believe that more investments in small and medium enterprises (SMEs) will lead to more taxes to shore up revenue that will enable the government pull some Nigerians out of poverty.
In all, the government should put good policies in place that will encourage more Diaspora remittances into the country. In the last three years, according to the Nigeria Diaspora Commission, the country earned about $75 billion from Diaspora remittances. Above all, the diversification of the economy remains the key to sustainable economic growth that will drastically reduce inflation and unemployment.