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The Performance Of Monetary Policy In The Nigerian Economy (1980-2010)
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Nigeria
did not have any stable macroeconomic policy enforcement before and
during the inflammation of structural adjustment programme (SAP). The
terms of trade deteriorated for most of the period between 1980 to 1985
and some previous years before the 1980. The consumer price index (CPI)
growth rate was on the average of 17.1% between 1980 and 1985 and though
this fell to about 5.0% in 1986 and 1987, if again started to rise from
1988, peaking at 47.5% in 1989. It has remained consistently high in
the 1990s reading an all time high of 54.7% in 1994. The current account
reported as surpluses between 1989 and 1993 after a fairly long period
of deficit between 1981 and 1988 (there was a moderate surplus in 1984
and 1985 due to the austerity measures embarked upon by the federal
government under the then military administration of general Babangida).
Domestic savings as a ratio of GDP, which stood at an average of 27.7%
between 1970 and1980, started to fall in 1981. Between 1981 and 1986, it
stood at 13.8% the instrument ratio has followed the same pattern
although, reporting slightly lower figures. Fiscal deficit has been
chronic and is financed by borrowing from the banking system. The share
of commercial banks in total financial assets has shown a structural
shift from about 57.7% in 1986 to 36.4% in 1993, the major gainer has
been the central bank whose share has increased from 33.1% to 46.4%
during the same period. It is doubtful if the structural adjustment
programme has improved competitiveness in the system as the three
largest banks still amount put a third of total deposits. One major
feature of banking in the period of deregulation is the occurrence of
large distress in the banking system. Close to 42 banks were severely
distressed in the system in the system with 45 percent of loans
classified as non-performing loans (CBN 1994). The performance of major
monetary and commercial banks ratios did not show any appreciable
improvement during reforms. For example, total loan and advances
measured as a ratio of GDP declined from 25.6 percent in 1986 to 14.3
percent in 1990. The aggregate domestic credit, GDP ratio which peaked
at 50.3 percent in 1986, reduced by half in 1993 (24.5%) with credit to
government commanding a larger proportion. The ratio of both narrow
money MI save trend. From a high trend of 19.2 percent in 1981, MI/GDP
ratio phi-meted to 11.5 percent in 1993 and M2/GDP ratio from 30.6 to
20.1 percent following the same pattern severely negative before the
liberalization exercise the deregulation exercise in 1987 yield interest
rate that were mildly negative to positive in the period 1987-1990. But
with pressure on prices thereafter real interest rates have turned
severely negative, again for the period of 1991 to 1994. It can be
observed that most macro-economic aggregates have become severely
unstable in recent times it is in this environment that indirect
monetary control was initiated in 1993. Much of difficulty in achieving
the objectives of SAP resulted largely from failure to achieve fiscal
balance and the consequent reliance on borrowing from the central bank
to finance the fiscal deficits. This has adversely affected both the
market for foreign exchange, money and goods and the expected role of
market in allocating resources efficiently. The extent to which open
market operations in government bills can help to successful manage the
excess liquidity in the system which is created by government borrowing
from the central bank is one of that while should be of interest given
the enormity of this problem in the attainment of stabilization goals in
the economy.
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ABSRACT - [ Total Page(s): 1 ]The purpose of this project work is based on the relative performance of monetary policy in the Nigerian economy. This work discussed the meaning of monetary policy is as combination of measures designed to regulate the value, supply and cost of money in an economy in consonance with the expected value of economies activities. The study shows further, the aims and objectives of monetary policy which includes price stability, maintenance of balance of payment equilibrium, promotion of employment, ... Continue reading---
