In a significant commentary on Nigeria’s economic policy landscape, Peter Obi, the former governor of Anambra State and presidential candidate for the Labour Party in the previous general election, has voiced apprehensions regarding the recent decisions by the Central Bank of Nigeria (CBN) to increase the Monetary Policy Rate (MPR) and Cash Reserve Ratio (CRR) to 22.75 per cent and 45 per cent respectively.
In a detailed statement released on Thursday, Obi expressed deep concerns over the potential adverse impacts of these measures on the country’s economic well-being, particularly highlighting the risk of exacerbated unemployment and economic instability, especially within the manufacturing and productive sectors.
Obi articulated his skepticism, asserting, “I am of the strong opinion that the recent decision of the Monetary Policy Committee to increase the Monetary Policy Rate, MPR, to 22.5 per cent and the Cash Reserve Ratio, CRR, to 45 per cent will further worsen the economic situation of most Nigerian households as it is bound to cause more job losses in the productive sector, especially manufacturing and other sectors that rely on bank loans and credit facilities for their funding needs.”
He elaborated further on the potential consequences, noting, “These new measures will worsen the fragile economy as the supply of funds would dry up for the real sector, and the new MPR rate hike will push the interest rate on loans to above 30 per cent, which would be very difficult for the real sector operators especially manufacturers and SMEs to repay; resulting, obviously, in increased bad loans, and worsening the nation’s economic situation.”
Obi’s critique extended to the perceived inadequacy of the monetary policy adjustments in addressing underlying economic challenges, stating, “Tightening liquidity in the financial system does not improve productivity, i.e., food production, which is the major cause of inflation in Nigeria.”
Furthermore, he highlighted a crucial statistic, emphasising, “Only about 12 per cent of N3.6 trillion of the total money in circulation is in the banking system which means that 88 per cent, about N3.2 trillion is outside the banking system. So, this measure would rather be counterproductive as it would not address the intended purpose of managing the money supply.”
Proposing an alternative approach to tackling inflation and stimulating economic growth, Obi advocated for a comprehensive strategy centered on addressing the root causes of inflation, particularly insecurity in the country’s food and crude oil production sectors. He emphasised the need for robust security measures to bolster production levels, lower prices, and restore investor confidence, both domestically and internationally.
“The most critical way to manage our high rate of inflation and decline in production is for the government to address the issue of insecurity in the country, which will allow for increased food, and crude oil production, and an overall increase in production, which will make products, especially food, cheaper,” Obi remarked.
He cautioned against relying solely on conventional economic theories and urged for a pragmatic and results-driven approach to addressing Nigeria’s economic challenges.
“I must caution that what the Nigerian economy needs now is hardheaded practical originality and results. Tinkering with classical economic theories can only deepen our crisis,” he added.
