THE EFFECT OF STABILIZATION POLICIES ON NIGERIAN ECONOMY

CHAPTER ONE

1.1    INTRODUCTION

Over the years, Nigeria has made conscious and determined efforts to attain a high level of social and economic transformation of the economy in order to attain the development goals and including monetary policy, fiscal, policy, exchange control measures and income and price control. The measures adopted were changed from time to time to reflect the changing economic environment and circumstances.

This work focuses on two of the policies adopted (monetary and fiscal policy) and examines their uses for economic growth and stability in Nigeria. Since the main burden of aggregate economic policy must fall on either monetary policy and fiscal policy or a combination of both.

The question arises as to whether to clear cut distinction can be made between policies which are termed "MONETARY" are those which are to be called “FISCAL”.  The truth is that considerable ambiguity about these terms exist and this often leads to useless debate and confusion.

However, monetary policy can be as a measure which deals with the discretionary control of money supply by the monetary authorities with a view of achieving stated economic' objectives. In other words, it employs the use of variation in the money supply to achieve economic objectives.

Fiscal policy on the other hand may be defined as the policy pursued by a government to influenced economics activities in economy by changing the size and content of taxation, expenditure and public debt with a view to achieving given objective.  Although, there two policies are independent tools of 1conomics stabilization, they are often combined by most countries for a greater effect on the economy.

Monetary and Fiscal policies as adopted in Nigeria have four broad objectives. The objectives include:

·       Maintenance of relative stability in domestic price

·       Attainment of a high and sustainable rate of economic development

·       Maintenance of balance of payment equilibrium growth and stability are so closely related that the economic policy of the government should include both of them.

Economic growth may be judges from the growth it total output of the economy as measured by annual increases in net national rod, ct in constant price. Such a measure tells us how much bigger the total economy is becoming over a period of time, but it tells nothing about changes in the standard of living of the people in the economy.

The more significant measures in the growth in real net national product divided by the number of people in the population. There are many targets of economic growth and development. They includes

·       Income distribution Gross national product Sectoral development (such as agriculture industries etc)

·       The pressure to attain economic stability or our economic is so strong that measures to promote federal government fidget.

·       To achieve the maximum practicable rate of growth, this is necessary to have stability. This does not mean a perfectly smooth rate of growth, but one that is not interrupted byI recessions and depression.

· Stabilization policies that are usually released annually concerns attempts to stabilize the level of national income by ensuring that serious inflationary and deflationary gapsdo not persist so that something close to full employment without rapid inflation can be achieved.

The government uses the instruments of monetary and fiscal policies to influence economic growth and development. The instrument of monetary policy available to the Nigeria monetary authorities include:

·       Rediscount rate

·       Interest rate structure

·       Reserve requirement

·       Direct credit control

·       Exchange rate and

·       Moral suasion

Some of the Fiscal policies relating to economy a growth and stability in Nigeria include: tax incentives (capital allowance, income tax relief, reconstruction tax exemption etc. relief fromimport duties, tariffs measures and budgetary measures. The government uses the instruments in achieving economic growth and stability.

1.2    STATEMENT OF PROBLEM

This study is basically aimed at

-        Has there been effort to study the monetary and fiscal policies used by the Central Bank of Nigeria (CBN) in achieving economic growth and stability.

-        The ability to access the effectiveness of monetary and fiscal policies.

-        Has there been recommendation to correct observed mistake by (CBN). If done, this will enable the monetary authorities to make optimal use of various monetary and fiscal tools at their disposal for rapid economic growth and stability.

1. 3   AIM AND OBJECTIVES OF THE STUDY

The general aim of this study is to examine the real problem of macroeconomic policy in Nigeria and propose some stabilization policies. While specific objectives are:

1.      To study the monetary and fiscal policies; used by the Central Bank of Nigeria (CBN) in achieving economic growth and stability.

2.      To asses the effectiveness of monetary and fiscal policies

3.      To make recommendation to correct observed mistake by the Central Bank of Nigeria (CBN) this will enable the monetary authorities to make optimal use of the various monetary and fiscal tool at their disposal for rapid economic growth and stability.

1.4    RESEARCH QUESTIONS

·       Can monetary and fiscal policy be used as a tool to achieve economic growth?

·       Could monetary and fiscal policy assess the effectiveness of monetary and credit policies?

·       Does the policies of the Central Bank useful to achieve rapid economic growth and stability?

1.5    THE STATEMENT OF HYPOTHESIS

HYPOTHESIS 1

Ho:  That monetary Policy does not achieve economic growth and stability.

HA:      That monetary policy achieves economic growth and stability.

HYPOTHESIS 2

Ho:    That effectiveness of monetary and credit policies could not be assess using the monetary policy.

HA:    That effectiveness of monetary and credit policies could be assess using the monetary policy.

HYPOTHESIS 3

Ho:    That the policies of the Central Bank could not be use to attain rapid economic growth and stability?

HA:     That the policies of the Central Bank can be used to attain rapid economic growth and stability?

1.6    RESEARCH METHODOLOGY

The research work makes use of secondary data obtained from various institution and publication. The data was obtained from Central Bank of Nigeria (CBN) Federal Office of Statistics (FOS), various publications from local and international journal. The search work will be tested using regression analysis; ordinary least square method was used in construction the model.

1.7    SIGNIFICANCE OF THE STUDY

It is hope that this research work will be practically and theoretical significant to the household, firm and government and for the improvement of the whole economy. There is no doubt at this study will benefit quit a number of people especially units involved .

1. 8   THE SCOPE AND LIMITATION OF STUDY

This study macro economic tools measure under the period of Structural Adjustment Programme (SAP) and mid seventy's (70's) (978-2008) also in examining how effective and efficient the macro economic tools measures have change in the economy since 1970's, only the activities of commercial, merchant, special banks and central bank will be used.

This was done through looking into the financial indicators in the economy.

-  The number of banks in operation

-  Money stock in the economy

Growth of credit allocation Banks loan and advances Growth of bank loans and advances Average interest rate (%).

A detail of this is in the date analysis which should be treated in further study. Most of the information and data used was collected mostly from Central Bank of Nigeria (CBN) through their annual reports bulleting and statement of account. This study shall be carried out exclusively in relation to the Nigeria economy.

This study as comprehensive as possible except for some constraints encountered during the course of study. There was a problem of time limit for the completion of the work. The regroup and hectic academic programmes which coincides with exams and period of the study or research was impediment. Inadequacy of data was alsomajor constraint other limitations of the study are time period under study and lack of current year data.

1.9    ORGANISATION OF THE STUDY

The project is structured into five chapters:

Chapter One dealt with the introduction which includes brief description of Nigerian Economy, Area of merger in the economy, Relevant and Significance of the study, Definition of terms, Scope and Limitations.

Chapter Two is mainly the Literature Review and Theoretical Frame Work of the study, the meaning and definition of Merger, motives of Merger and Acquisition, Merger game and the effect on economy.

Chapter Three based on the research method this include method of data collection, hypothesis to be tested and the statistical tools that are to be used.

Chapter Four dealt with the research methodology, data preparation and analysis.

Chapter Five is the Summary, Recommendation and Conclusion of the research study.

REFERENCES

Aigbokan, B, (1994): Macro Economic Theory Policy and Evidence

Idelojie Publishers, Benin City.

Baunsagaard. T (2004): Monetary and Fiscal Policies in Nigeria

International Monetary Fund (IMF) working paper No. 03/155.

DueSenbery J.S. (1964): Monetary and Credit impact control,Prentice

Hall Inc Englewood cliff, New Jersey.

Friedmon M. (1986): The role of Monetary Policy America economics

review Vol. 58.

Friednion, M. (1986). "The Role of Monetary Policy" America Economic

Review. Vol. 58.