SIR: In Nigeria, high inflation has been one of the major challenges facing the nation’s economy. During an inflationary period, the domestic currency finds it difficult to act as a medium of exchange and a store of value without adversely affecting output level, income distribution and employment level of the country. Inflation leads to currency depreciation and a rise in foreign exchange rate.
This is obviously the case of the Naira as it has depreciated overtime against the US dollar and other major foreign currencies. For example, the naira exchange rate was ?0.61 per US dollar in 1981, and depreciated to ?2.0206 to a dollar in 1986. In 1991, the exchange rate depreciated to ?9.9095 per dollar, and further depreciated to ?21.886, ?111.9433, ?128.6516, ?153.8616 and ?199.268 in 1996, 2001, 2006, 2011 and 2015 respectively.
However, the corresponding rate of inflation in 1981 stood at 20.8% in Nigeria; and in 1986, the inflation rate declined to 5.7%, and increased to 13.0% in 1990. By 1996, the rate of inflation again rose to 29.3%; in 2001 and 2006, the rates of inflation were 18.9% and 8.2% respectively; and it was 10.8% and 9.0% in 1981 was -20.4%; in 1986, the growth rate of RGDP rose to 1.9%, and declined to 0.01% in 1991. By 1996, 2001, 2006, 2011 and 2015, the growth rates of the RGDP were 4.1%, 9.8%, 6.0%, 7.4% and 3.9% respectively.
Inflation in Nigeria has become a major threat to economic activities, especially for workers whose standard of living declines continuously. The inflationary factors traced to Nigeria’s high inflation include continuous hike in petroleum price and exchange rate depreciation/devaluation. These increases in the two variables (price of petroleum and exchange rate depreciation) have been blamed for the increases in the transportation costs, input materials, foodstuffs, rents, and goods and services, coupled with the exchange rate depreciation in Nigeria.
The Federal Government is advised to pursue vigorously those economic policies that are capable of promoting economic growth, as it will help to reduce inflation rate in the country.
The government is also advised to expand its capital budget expenditures on public investment projects, and as well create a favourable business environment for private investment in Nigeria. It is only in this way that significant economic growth will be achieved and sustained in the economy.
Lastly, the government should reconsider its over-reliance on its expenditures on government investment and private investment in solving inflation problems, as there are other variables responsible for high inflation in the economy.
- Felix Oladeji,
Lagos