Oil shocks and devaluation of the Naira

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Barely eight months after the rebasing of  Nigeria’s gross domestic product (GDP), which places the country as the largest economy in Africa and the 26th in the world, there are indications that currently, all is not well with the nation’s economy. The crash in the international price of crude oil, Nigeria’s cash cow, with its attendant dwindling revenue, has put the economy in dire strait.

To buffer the economy due to the prevailing crisis, the fiscal and monetary authorities opted for austerity measures and the devaluation of the Naira respectively. The Monetary Policy Committee of the Central Bank of Nigeria (CBN) decided to devalue the Naira to N168 to one America Dollar, from N155. The CBN also increased the Monetary Policy Rate (MPR), the rate at which the apex bank lends to deposit money banks, from 12 percent to 13 percent while the Cash Reserve Ratio (CRR) on private deposits was moved up from 15 to 20 percent. It, however, retained the public sector CRR at its current level of 75 percent.  

For the fiscal authorities, they adopted a multi-pronged austerity measures to protect the economy from any adverse effect of the oil price slump. As part of the austerity measures, government intends to review the granting of import duty exemptions and impose taxation on luxury goods consumption, owners of private jets and yachts as well as those who patronise champagne and similar items. The plan is to make the wealthy members of the society contribute more to easing the pain that will result from the current economic challenges.

But the big question is: Would these measures mitigate the hardship that would be inflicted on Nigerians by the inflation that will likely be triggered by the devaluation of the Naira?  What is the way out of the present precarious economic circumstance?

 It is against this backdrop that TheEconomy decided to provide an in-depth analysis in its cover story on the implications of the devaluation of the Naira and the economic adjustment measures introduced by the Federal Government. Laced with inputs by economic and financial experts, the cover story, entitled “Naira Devaluation: Hard Times Loom”, was anchored by Dike Onwumaeze, Associate Editor.

As Year 2014 gradually rolls into the abyss of history, we also have “Events of the Year” as part of this package to help you keep abreast of some of the issues that were dominant in the outgoing year. On this note, we wish our esteemed readers Merry Christmas and a prosperous 2015.

Chris Ajaero

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