Inflation as a phenomenon is a crucial economic indicator that affects the livelihoods of individuals and the overall stability of a country's economy. Nigeria being the largest economy in Africa, has been grappling with a hyper inflation, with the most recent figure reaching 22.23%. Additionally, the removal of fuel subsidy in the country has had a dual impact in the entire economy. In this his my publication today, we would be scrutinizing the causes of the country's high inflation rate and also analyze the effects of the removal of fuel subsidies by the current administration led by President Bola Ahmed Tinubu (BAT)
Understanding Inflation in Nigeria.
Inflation refers to a sustained increase in the general price level of goods and services in an economy over a specific period of time or simply out it is just plenty money pursuing few goods. There are several factors which contribute to inflation as these includes demand-pull factors, cost-push factors, and monetary factors to be precise. Nonetheless, I have elucidated a combination of the following variables the major cause to the high rate of inflation experienced in the Nigerian domestic economy.
Demand-pull factors.
One of the primary drive of inflation in Nigeria is excessive demand relative to very few supplies of our domestic products.
Urbanization, rapid population growth, low level of technology and increasing disposable incomes have led to higher domestic demand. However, the domestic production capacity has not kept pace with this increasing demand, resulting in over reliance on importation. This increased reliance on imports mounts pressure on foreign exchange reserves and contributes to a more inflationary pressures in the country.
Cost-push factors.
Increasing cost of production have also played a significant role in our domestic inflationary environment. Several other factors contributed to this, including the depreciation of the national currency by the current administration in other to lure investors, inadequate infrastructure, high energy costs, and insecurity in some regions like the northern hemisphere is also a contributing factor. Nonetheless, these factors increase the cost of production for businesses within the domestic economy which in turn is passed to consumers through higher prices of what is domestically produced or probably imported.
Monetary factors.
Monetary factors, like excessive money supply, have also contributed to the country's inflationary situation. The Central Bank of Nigeria's (CBN) expansionary monetary policy that is aimed at just stimulating economic growth with much impact in the living standard of the masses which would have triggered development have resulted in increased money supply in the system. Excessive liquidity or money in circulation as we know, fuels demand and increases inflationary pressures.
These are factors that has contributed to the increasing rate of inflation in Nigeria and it is speculated that before the end of this 2023, our domestic inflation rate would have scaled to 25%
Fuel subsidy has long ago been a contentious issue in the country because of the benefits derived by those promoting this economic variable. The subsidies were initially introduced to cushion the impact of rising fuel prices on the masses. However, they have become a significant burden on the government's finances, leading to their removal just recently by the current administration of the BAT led government. The effects of this policy change have been both positive and negative effect on our domestic economy as we would see below.
Fiscal Sustainability.
The removal of subsidy on fuel has reduced the burden on the government's finances. Fuel subsidy accounts for a marmot portion of the Nigerian government expenditure, but the wrong concept was rather promoted about the subsidy which was the diverting of resources that could have been allocated to critical sectors of our economy such as education, healthcare, etc. that was embezzled by those fighting for the continuance of the concept just for selfish interest.
Fuel subsidy removal has allowed the government to redirect these funds towards productive sectors of the domestic economy but to be sincere, we are yet to see the full effect of this my assertion on the domestic economy.
Market Efficiency.
Subsidies often distabilize market forces and impares the development of a competitive market system. The currently removal of fuel subsidy in Nigeria has created a more efficient market environment, allowing for fair competition among fuel distributors. This, in turn, can encourage investment opportunities and innovation in the different sectors of the economy, leading to improved services and better selling price system.
Increased Cost of Living.
The removal of fuel subsidies has led to an immediate increase in fuel prices both in the domestic economy and cross boarders, resulting in higher transportation costs especially in the domestic economy. As transportation costs rises, the prices of goods and services throughout the economy also increased, thereby directly impacting the cost of living for the average Nigerian. This puts a malignant strain on households, particularly those with lower incomes, who must allocate more budgets to their basic needs.
Inflationary Pressure
The extermination of fuel subsidies has increased the existing inflationary pressures in the country. The higher fuel prices directly contribute to increased production costs by manufacturers, which is now passed on to consumers through higher prices of good and services. This has further created an ample effect on the entire economy, pushing up the general price level and also increasing the rate of inflation.
Possible Means of Mitigating Against The Above observed Issues in The Nigerian Economy.
To address the challenges posed by Nigeria's high inflation rate and the removal of fuel subsidies, several measures should be put in place for real extermination of these menace as the include but not limited to the following:
Fiscal Discipline.
The government of Nigeria must focus on prudent fiscal management to ensure sustainable economic growth in the domestic economy against inflation in precision. This includes reducing wasteful use of resources, improving domestic generation of revenue, and implementing effective public monetary management systems. These measures can help alleviate the inflationary pressures and reduce the need for excessive monetary expansion policy adopted by the CBN.
Enhancing Productivity.
Encouraging investment in key sectors of the economy like agriculture and manufacturing, can boost domestic production and reduce over reliance on imports especially now our domestic boarders have been opened. This will help address trade imbalance and further contribute to price stability in both the short and long run.
Diversification and Economic Reforms.
Nigeria's domestic economy over relies on oil revenues, making it highly vulnerable to global oil price fluctuations problems. Diversification efforts should be intensified by the government, focusing on sectors with high growth potential like Agriculture, renewable energy, technology, and services.
Furthermore, implementing structural reforms by the federal government is imminent so as to improve the ease of doing business in the country, attract foreign investment, and foster entrepreneural engagement can help harness economic growth and reduce inflationary pressures.
Nigeria's high inflation rate of 22.23% poses very great threat to the domestic economy and its citizens' welfare. Factors such as increasing demand, rising cost of production, and expansionary monetary policies have greatly contributed to this inflationary pressure which is majorly felt by the poor and low income earners in the economy.
Furthermore, the removal of fuel subsidies, while it can be considered to be beneficial for long-term fiscal sustainability and market efficiency, has also added to inflationary pressures in the domestic economy and increased cost of living for all Nigerians though at this I consider it fit since the subsidy itself has been a means of embezzling public fund by a few cabals over the years.
To mitigate against these effects and promote economic stability, fiscal discipline and increased productivity, economic diversification and reforms are crucial at this point in the history of the Nigerian Nation, that is if we can lay aside our political and ethnic difference that has ripped off the credibility of our polity.
Also by adopting a comprehensive approach, Nigeria can address the inflationary challenges and create a more sustainable and prosperous environment for all of it's citizens.
Honestly, how I wish that I'm in the position to address our government, these and more would be proferred which I believe has the potential to drive the state of the nation to a positive, stabilized and more prosperous position.
Finally, I wish to appreciate everyone for going through my article which is based on the current state of my country's financial and economic position at this time in history. Bye and hope seeing you in my next publication, it would also be in my humble pleasure to entertain any question regarding the state of the Nigerian Nation in response to my assertions in this article.