The Federal Government and Central Bank of Nigeria (CBN) are battling an economic anomaly called stagflation as both inflation and unemployment which should have an inverse relationship are rising simultaneously.
Data released by the National Bureau of Statistics (NBS) for the first eight months of 2016 show a gradual increase in inflation, while unemployment has also been on the rise.
Inflation which began the year at 9.62 per cent has risen to 17.61 per cent in August with the possibility of further increases as researchers at FSDH Merchant Bank and ARM predicted inflation number of 17.7 per cent and 17.8 per cent respectively for August.
On the other hand, national unemployment rate rose from 10.4 per cent in the fourth quarter of 2015 to 13.3 per cent in the second quarter of 2016.
According to the NBS, “the number of unemployed in the labour force, increased by 1,158,700 persons, resulting in an increase in the national unemployment rate,” in the second quarter of 2016.
The NBS says, there were 26.06 million persons in the Nigerian labour force in the second quarter of 2016 that were either unemployed or underemployed compared to 24.5 million in the first quarter and 22.6 million in the fourth quarter of 2015.
Stagflation occurs when there is persistent high inflation combined with high unemployment rate and stagnant demand. The term which is attributed to a British Conservative Party politician, Iain Macleod was first used in 1965 to describe a condition that faced many western economies in the 1970s.
“A major cause of the current negative growth in output associated with rising unemployment and inflation in Nigeria can be explained by supply-side shocks triggered by changes in the management of the foreign exchange market in response to declining oil price,” Ikechukwu Kelikume, an economist and don at the Pan African University says.
“The immediate effect of a fall in the value of the Naira,” says Kelikume, “was a rise in the price of Nigerian imports which drove up the cost of imported raw materials need by the productive sector.”
Currently, the increase in the general price level is accompanied by declining real GDP growth rate which has fallen significantly from 6.21% in the first quarter of 2014 to 3.96% and -0.36% respectively in first quarters of 2015 and 2016 respectively.
We may not exactly be at the throes of stagflation yet Bongo Adi a professor at the Pan Africa University says. “But if we do not move faster to ameliorate the economic conditions, we may not be far from hitting that negative economic condition.”
But the Federal Government and the Central Bank have kick-started efforts at bringing the country out of recession.
Based on decisions made at a retreat organised by the presidency to tackle the decline in economic fortunes, members of President Muhammadu Buhari’s Economic Management Team led by Vice President Yemi Osinbajo Monday commenced a Presidential Quarterly Business Forum with the Organised Private Sector.
The President whose body language towards the private sector was hitherto distant, last weekend made a u-turn as government revenue continues to shrink following low oil prices.
“This deliberate inclusion [of the private sector in the scheme of things] underscores the commitment of this Administration to leverage on private sector resources, through Public Private Partnerships (PPP) and other arrangements, in order to augment the scarce budgetary resources at our disposal and to accelerate investments in building critical infrastructure,” the President said at a one-day retreat with his cabinet alongside economic experts.
While the finance minister, Kemi Adeosun has called on the Monetary Policy Committee of the Central Bank to cut rates, so as to cut the cost of lending and kick-start the economy and thus create jobs.
On its part, the Central Bank is working to manage inflation, as the Federal Government tries to spend its way out of a recession.
“In a time of recession you need to spend to achieve growth, Godwin Emefiele told BusinessDay in a chat last Friday. “However, on the other hand, you have to be very careful so that excessive spending does not result in sky-rocketing inflation.”
Governor Emefiele says, “That is why at the last MPC meeting, members tried to weigh the balance between growth and inflation and noted that if we allow inflation to grow at the rate that is so astronomical and uncontrollable, that could be a problem.”
“There is no guarantee that inflation may not increase as the government tries to spend its way out of recession. But were not out of the woods yet as the factors which caused some of these challenges are still in place,” says Bongo.
“Global headwinds occasioned by drop in oil price remain a challenge, the infrastructure is still not there to drive down production and transportation cost and government policies are just not adequate to pull the nation out of recession, he says.”
Many economists believed that there was a stable inverse relationship between inflation and unemployment until the late 1960s. Their general belief was that an increase in the demand for goods would drive up prices, which in turn would encourage firms to expand and hire additional employees. In times of recession this arrangement fails. Policy makers are then forced to take extraordinary measures to bring the economy out of the woods.
No comments:
Post a Comment