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Macroeconomic Policies in Nigeria
Introduction
The functioning of the economy as a whole is a focus of fiscal and monetary policy. Macroeconomic policy is to create a climate that is secure and supportive of a resilient and sustainable increase in the economy, which is essential for generating wealth, employment, and better living standards (Alam, Kiterage, and Bizuayehu, 2017). A stable and sustainable fiscal policy, a comparable and foreseeable actual effective exchange incidence, public finances that are recognized as feasible, and a low transaction consumer price index are the five characteristics of a macroeconomic policy environment that is favorable to change (Oseni, Okwu, Babalola and Adegboyega, 2020). Although there are numerous specific situations of both emerging and established nations indicating that achieving merely any of these parameters does not maintain significant development, governments with these macroeconomic features tend to expand more quickly than those without them.
Low and stable inflation can be the consequence of sensible economic management. By slowing growth and transferring wage growth and wealth away from those members of society who are less capable of protecting their commercial development, inflation harms the poor (Ojo, 2020). Thus, in addition to hindering growth and obfuscating trade, an excessively appreciated pound sterling can break the relative income levels and spending power of the poor (Popov, 2018). Because they can depress real wages, raise unemployed, decrease an organization or an entitys income, and restrict corporate and net state transfers, extreme events can be especially harmful to the poor.
Evidence from several nations and historical eras demonstrates that growth is primarily responsible for the long-term decline in deprivation. Macroeconomic stability is critical for better and sustained growth rates since income activity is the main factor determining impoverishment (Ighodaro and Ajayi-Ojo, 2019). The financial sector should thus be a vital element of any effort to reduce poverty. Additionally, growth by itself is insufficient to end poverty. Poverty will be affected more by development connected to the gradual distribution of income adjustments than by change with constant dispersion.
Literature Review
An increase in the amount and quality of the financial services and goods that a community generates is referred to as economic growth. Everyones expenditure is someone elses revenue since the whole amount of products and services produced in society equals the total amount of income in that society (Onyele, Ikwuagwu, and Onyekachi-Onyele, 2020). Simply put, short-term economic growth is a rise in GDP over a specific time period. Short-term growth is feasible without any expansion in productive capacity if the economy is underperforming; it just requires the utilization of performance and resources. Sustainable economic growth is defined as a pace of economic expansion that does not significantly affect pricing for goods and services (Onyele, Ikwuagwu, and Onyekachi-Onyele, 2020). It uses resources in a way that does not harm the environment or the following generations.
Five characteristics can be used to define a macroeconomic policy framework that promotes growth: low and predictable inflation, a reasonable real interest rate, a steady and reliable fiscal and monetary policy, marketable and consistent macroeconomic variables, and public finances that are deemed to be feasible. Although there are numerous specific situations of both emerging and established nations indicating that achieving merely any of these parameters does not maintain significant development, governments with these macroeconomic features tend to expand more quickly than those without them.
Firstly, a greater GDP suggests that the economy is creating more products and services, increasing the number of goods and services that customers may access. Growth is advantageous to society if consumption is correlated with human welfare. Increased consumption will contribute to a decrease in the risk of absolute poverty (Peterson, 2017). Because people will pay more income tax and VAT as their incomes grow and as they consume more, a greater GDP will enable the government to collect more revenue. Benefits include the government being able to spend more on public infrastructure and service improvements while reducing the amount of debt it is now carrying. This expenditure on public facilities may enhance the economys long-term efficiency.
If economic growth is unsustainable and is higher than the long-run trend, rate inflation is likely to occur. Furthermore, this temporary boom in output is unlikely to continue and may be followed by an economic downturn or recession (Peterson, 2017). Thus, it can be very damaging to increase the economic growth rate above the sustainable rate. Also, increased economic growth could lead to a balance of payments problem. If increased consumer spending, like in the UK, causes change, then imports will increase. The higher output will lead to increased pollution and congestion, which can reduce living standards, such as an increase in breathing problems, and time wasted in traffic jams (Peterson, 2017). Growth will lead to the consumption of non-renewable resources, which may place costs on future generations.
The Nigerian economy was confronted with the instantaneous challenging task of how to accelerate the percentage of strong economic growth that would translate to lowered absolute poverty, improved health care, improved important ecological quality, overcome lack of education, ensure and enhance democratic political consistency, reduce the occurrence of violence and crime, and become an investment destination of choice for foreign corporations, level of prices. Economic growth in Nigeria is extended as contrasted to the growing economies in the world (Edokobi, Okpala, and Okoye, 2021). In order to raise produced incomes and accelerate Nigerias potential to become an important business and financial competitor in the world, a broad-based economic growth plan with a long-term framework is crucial.
Economic disparity in Nigeria is expanding, with an ever-increasing economic divide between the economically prosperous urban southern area and the comparably destitute rural populace in the north. This disparity is primarily brought on by the norths inequalities in access to infrastructural development, which is made worse by security worries related to the Boko Haram insurgency. Gains from productivity expansion are focused among the already wealthy due to inequality, while chances for the poor to overcome poverty are diminished. Economies with labor-intensive industries as their main drivers of growth frequently experience a more significant decline in poverty (Edokobi, Okpala, and Okoye, 2021). Although both the industrial and service sectors have grown in Nigeria, the agricultural sector has contracted, and job prospects are not expanding at the same rate as the population.
The fundamental goal of fiscal policy has been seen to be low inflation at the expense of national economic determinants, such as job creation, which gauges a countrys production performance. Although the private industry of the Nigerian economy is weak, it has had limited access to financial resources throughout the years due to bank failures, the consequences of the international economic meltdown, and acquisitions of nonequity assets, credit sales, and other receivables (Agri, Mailafia, and Umejiaku, 2017). The contraction or stagnation of financial firms lending to the private sector and smaller businesses is the first planned or unexpected effect of these monetary policies on the general economy. Due to the restrictive fiscal policy, these companies are less able to grow their current operations or launch new ones by obtaining loans from financial institutions at lower market rates.
According to fiscal policy theory, an increase in the money supply will cause a rise in prices, more accessible access to credit, more investments, a real devaluation of the currency, and a surge in authentic gross national product. In contrast to the theory that suggests exchange rate volatility may increase net local exports and, consequently, consumer spending, a positive surprise to the real effective exchange rate causes production to fall. There is a noticeable boost in production, but it ends quickly.
Interest rates react inversely to innovations that lead to positive production growth. This is accompanied by a rise in the real effective exchange rate, credit growth, and monetary growth rate (Edokobi, Okpala, and Okoye, 2021). The most astounding effect is the correlation between grades in real GDP and a downturn in inflation over the first two years. This further demonstrates that an increase in the money supply that stimulates real GDP growth nonetheless results in a non-inflationary result for the economy (Bourguignon and Chakravarty, 2019). Instead, a rise in GDP may hasten overall demand, which in turn raises the need for investment funds in private industries.
Lack of social mobility, lack of empowerment, and lack of security is how poverty sums up the numerous dimensions. The impoverished majoritys window of chance stays closed, thus rendering them inactive in society (Agri, Mailafia, and Umejiaku, 2017). Their lack of power severely restricts their options, and their security problem leaves them open to sickness and violence. A violation of human dignity, poverty denies people their rights to alternatives and chances. It denotes a lack of a necessary ability to contribute to society in a meaningful way.
Widespread and abject poverty are facts of life in Nigeria. It is a reality that shows a lack of fundamental necessities, including food, clothing, and schooling. People who live in extreme poverty lack the bare essentials to such an extent that it is puzzling how they continue to exist. Poverty in Nigeria has a number of consequences and shortcomings. Poor health is one of the significant consequences of poverty, as seen by Nigerias high mortality rates and low life expectancy (Agri, Mailafia, and Umejiaku, 2017). Due to a lack of access to primary healthcare resources and qualified medical professionals, the poor in Nigeria confronts a variety of health problems. Most kids cannot get inoculated, which causes confident kids to have particular physical flaws (Bourguignon and Chakravarty, 2019). Their wellness has fallen to the bottom of their list of priorities, and since they have few or no options, they make do with what they are given, whether it is nutritious or not.
Reducing poverty has emerged as a critical development objective. It may be accomplished through both economic expansion and income distribution. The poors ability to benefit from growth has become a top concern for development policy (Lewis, 2017). There is growing agreement that growth alone is a relatively ineffective method for reducing poverty (Bourguignon and Chakravarty, 2019). Policies pertaining to the transfer of income or assets have grown in importance, along with a focus on reducing poverty. A policy strategy that prioritizes both reducing poverty and addressing distributional issues may improve both economic development and equity.
An effective approach to reducing poverty must have essential components that encourage fast and long-term economic growth. Combining policies that promote growth with those that enable the poor to fully engage in the possibilities created and so contribute to that growth is a dilemma for policymakers (Lewis, 2017). This includes measures to improve the functioning of the labor market, eradicate gender inequality, and broaden financial inclusion. A more globalized world that presents new opportunities and problems will need to serve as the foundation for future progress (Bourguignon and Chakravarty, 2019). New technologies provide both advancing and catch-up opportunities. Better chances are available in both the service and production industries thanks to new research.
This part of the study looked at how Nigerias economic development affected efforts to reduce poverty. Economic growth, as measured by the GDP growth rate, was included in the equation as a predictor variable. The explanatory factors included poverty, unemployment, demography, mortality, life expectancy, bribery, expenditure, per capita income, and education level. The Central Bank of Nigeria and the Statistical Bulletin served as the datas primary sources. Secondary data on the Gross Domestic Product (GDP) from 1980 to 2017 were gathered to guarantee an appropriate and thorough study.
Analysis and Discussion
The link between economic growth and poverty reduction in Nigeria is investigated using a multivariate regression analysis that takes into account both the baseline level of economic growth and changes in economic development. The analysis results show that the early rate of economic growth is not conducive to reducing poverty. While poverty tends to decrease with an increase in economic growth, this trend can only be maintained and managed if specific policy measures are put in place.
Macroeconomic stability policies, such as sound monetary and fiscal policies that would foster private sector investment and hence foster production, which would help the poor and non-poor, are essential among policy initiatives. In order to eliminate poverty by boosting unemployment and enhancing chances for constructive things among the poor, the processes should also highlight labor-intensive strategies (Ogar, Arikpo, and Suleiman, 2019). Additionally, if the system leads to higher production, salaries will rise, which would, in most cases, enhance the quality of life for the most vulnerable members of society.
The constant (c) = 61.42404 shows that the correlation line has a positive intercept. This indicates that GDP will be valued at 61.42404 if all other factors are maintained constant (zero). The interception, therefore, meets the areas for the future because it might be either positive or negative according to the initial expectations. Except for consumerism, unemployment, and illiteracy rate, all the variables from the regression model are consistent with the prior macroeconomic assumption (Ogar, Arikpo, and Suleiman, 2019). Economic growth is anticipated to slow as unemployment decreases.
The outcome, however, paints a clear picture of the problem in Nigeria, where employment is rising despite what is thought to be economic progress there. Additionally, intake is shown not to match the subject of continuing. Economic growth is anticipated to expand along with rising demand. As consumption grows, economic growth increases, which creates an image of an oil-dependent society where other sectors add little to growth (Kuznets, 2019). A further nonconformity was discovered to be illiteracy. This shows technical sluggishness in a developing country.
In addition to macroeconomic stability, it is essential to have a solid legal and regulatory system in place to safeguard both domestic and international investors against capricious and unexpected changes in the business environment. Government initiatives in the economy of the country that would benefit the poor, especially those in the rural and unorganized sectors, also require increased focus (Kuznets, 2019). In this context, government efforts to provide new infrastructure facilities and to maintain and repair those that already exist should be stepped up. Additionally, initiatives should be taken to strengthen the agricultural industry through the revival of farming commodities marketing boards, intense research and technology advancements, the supply of loans to farmers, and the delivery of high-quality healthcare services.
Conclusion and Recommendations
A practical approach to reducing poverty must have essential components that encourage fast and long-term economic growth. Combining development-promoting policies with those that enable the underprivileged to fully take advantage of the possibilities created and so contribute to that growth is a difficult task for policymakers (Kuznets, 2019). This includes measures to improve the efficiency of the labor market, eliminate gender disparities, and broaden financial participation. Further study is required to fully understand the variability in the consequences of growth on inequality and the role that regulations have performed in achieving improved outcomes. Excellent micro empirical research can be helpful in this area because while sound policymaking for combating poverty must undoubtedly be concerned with the aggregate consequences on the poor, it cannot disregard the diversity of effects that underlie the averages (Kuznets, 2019). Along with fostering economic growth, this variety also offers potentially significant hints as to what more needs to be done by authorities to encourage reducing poverty (Temitope DADA and Fanowopo, 2020). To summarize, this study suggests that if an education policy aims to reduce poverty, the ultimate goal should be to reduce poverty and boost economic growth.
To appropriately minimize inflation, the authorities must regulate monetary and fiscal policy. In Nigeria, inflation has deterred FDI and domestic investment, which has a detrimental effect on the economy. By deliberately creating facilities that would lower the cost of operating a business in Nigeria, the government should promote entrepreneurship and business growth (Temitope DADA and Fanowopo, 2020). The power supply has to be significantly enhanced. Finally, the administration should make a concerted effort to implement macroeconomic policies that promote growth and stability in order to spur rapid economic growth.
The strategies for reducing poverty in Nigeria should be quantifiable and practical. by focusing on the peoples perceived needs and level of occupation. Prior to and during the implementation of programs, monitored knowledge transfer is essential (Edokobi, Okpala, and Okoye, 2018). This will assist in addressing the problem of unemployment brought on by the demise of government-supported firms. The government should foster a strong sense of nationalism and patriotism that would reaffirm itself in high levels of mutual trust, security, and growth that will allow responsibility, openness, and accessibility, which over time will aid in boosting economic and social progress.
Continued investment in education, such as using ICT to educate the underprivileged, may raise productivity, increase possibilities, draw in capital investment, and raise earning potential, all of which can raise household living conditions. Authorities should also make an all-encompassing effort to promote basic human welfare, including health and social infrastructures since this will gradually lower the high incidence of child death and raise the standard of life.
Over time, the interaction between structure and economic expansion had a detrimental influence on household spending. This indicates that, in the long term, institutions and economic development work best together to reduce poverty (Temitope DADA and Fanowopo, 2020). In conclusion, it was discovered that battling poverty in Nigeria requires the use of both solid institutions and economic growth. On the other hand, for Nigeria to see both short-term and long-term reductions in poverty, economic growth must increase. Long-term poverty reduction in Nigeria requires more than just enrolling children in primary education; capital accumulation is necessary.
It is also essential to address the nations lack of proper governance and the corruption that has destroyed its economy. Civil and economic rights, which are crucial for personal initiative and growth, would be strengthened if good governance was permitted to flourish (Lewis, 2017). Similar to this, with good management, leaders will be able to offer the poor the possibilities they need, such as community assistance, employment, safety nets, security, and details that will license responsibility, accountability, and approachability, which over time would aid in boosting economic growth and reducing poverty.
To increase economic stability, the nations organizations should be of higher quality, and the political climate should permit democratic elections. To further decrease bribery to its lowest level, the operations of Nigerias anti-graft authorities should be reinforced. Additionally, political knowledge must be included and made required in all levels of the school curriculum, whether elementary, intermediate, or tertiary. Finally, it is essential to increase investments in human resource development and jobs for women and young people (Lewis, 2017). Long-term income activity and poverty reduction will result from this, increasing the number of investments in the nation.
Reference List
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Agri, E. M., Mailafia, D., and Umejiaku, M. R. I. (2017). Impact of economic recession on macroeconomic stability and sustainable development in Nigeria, Science Journal of Economics.
Bourguignon, F., and Chakravarty, S. R. (2019). The measurement of multidimensional poverty, Poverty, social exclusion, and stochastic dominance. Springer. pp. 83-107.
Edokobi, T. D., Okpala, N. E., and Okoye, N. J. (2021). Monetary Policy and Trade Balance in Nigeria.
Edokobi, T. D., Okpala, N. E., and Okoye, N. J. (2018). Economic Growth and Poverty Reduction in Nigeria.
Ighodaro, C., and Ajayi-Ojo, A. O. (2019). Macroeconomic Policies, Industrialization and Economic Growth in Nigeria, Tanzanian Economic Review, 9(1), pp. 1-14.
Kuznets, S. (2019). Economic growth and income inequality, The gap between rich and poor. Routledge. pp. 25-37.
Lewis, O. (2017). The culture of poverty, Poor Jews. Routledge. pp. 9-25.
Ogar, A., Arikpo, O. F., and Suleiman, L. G. (2019). Fiscal and macroeconomic policies dynamics in Nigeria. Global Journal of Social Sciences, 18, pp. 33-51.
Ojo, E. (2020). Macroeconomic Policies On Poverty And Income Inequality In Nigeria: An Empirical Analysis, IOSR Journal of Humanities And Social Science (IOSR-JHSS), 25(8), pp. 01-18.
Onyele, K. O., Ikwuagwu, E. B., and Onyekachi-Onyele, C. (2020). Macroeconomic policies and stock market liquidity: Evidence from Nigeria, Economy, 7(1), pp. 25-35.
Oseni, I. O., Okwu, A. T., Babalola, D. A., and Adegboyega, S. B. (2020). Recession and the challenge of sustainable economic growth in Nigeria: An evaluation of macroeconomic policies, Tanzanian Economic Review, 9(1).
Popov, A. (2018). Evidence on finance and economic growth, Handbook of finance and development, pp. 63-104.
Peterson, E. W. F. (2017). The role of population in economic growth, Sage Open, 7(4).
Temitope DADA, J., and Fanowopo, O. (2020). Economic growth and poverty reduction in Nigeria: The role of institutions, Ilorin Journal of Economic Policy, 7(7), pp. 1-15.
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