‘ Nigeria must adopt structural reforms to support economic growth’
TO break the vicious cycle of inflation and low growth, there is a need to adopt structural reform that would support economic growth and mitigate the impact of monetary policy changes.
According to analysts at Agusto & Co, besides creating structural reforms, efforts should be geared towards targeting interventions, in addition to investments in critical infrastructure and promoting non- oil exports to promote diversification and resilience. In its monthly report, ‘ Beyond the Hike: Nigeria’s Multifaceted Fight For Stability’, the analysts stressed the need for the government to take decisive actions towards boosting output to tame slow - ing gross domestic product
( GDP) and rising inflatio n. They noted that with the nation’s GDP growth slowing for two consecutive years amid high inflation, decisive actions are needed to boost output. However, the experts stated that broad- based and sustainable
GDP growth is only possibl e in a low- inflation en vironment while low output and productivity are significant structural inflation- stoking factors in Nigeria. GDP growth considerations have taken a back seat for the Central Bank of Nigeria’s ( CBN), they said, noting that the ball now rests squarely on the fiscal authority. The expert also argued that the recent CBN’S decision to stabilise the naira, following its plunge to an all- time low of 1900/$ at the parallel market on February 2 2, should ideally have preceded the decision to ‘ float’ the naira.
According to them, the observation clearly underscored the importance of timing considerations in the implementation of monetary policies for optimal efficacy and resilience as many believe that proactive measures
could have potentially mitigated the severity of the naira’s precipitous decline since June 2023. On raising the cash reserve ratio ( CRR) to 45 per cent, the experts said the threshold has placed Nigeria far ab ove its regional peers ( South Africa: 2.5 per cent, Kenya: 4.3 per cent and Ghana: 15 per cent). They pointed out that banks’ loan growth will be constrained in 2024 due to the increased procurement of treasury bills prompted by higher yields, while the CBN has to face the task of proactively adopting a risk management perspective to navigate the implications of its newly - adopted ha wkish monetary policy stance on the banking sector.