Stagflation is a term used to describe a situation where an economy experiences both high inflation and stagnant economic growth. This is a particularly challenging economic situation because it combines the negative effects of both inflation and recession.
Unfortunately, the outgone Buhari administration and his self serving economic team, through their poor management of economy, reckless spending, differential foreign currency rates and the use of Ways and Means, by the Central Bank and the Ministry of Finance, ended up driving the Nigerian economy into a state of stagflation.
This unsavory economic situation, which we have found ourselves, will take the ingenuity of the Tinubu’s administration and the economic team that he would put together to ameliorate. And with some of the steps so far taken by the new administration, such as the harmonization of the exchange rate, and the removal of fuel subsidy, are among the right policy directions that would pull Nigeria through.
However, it would be counterproductive, should President Tinubu assent to the 114% salary increment of members of the National Assembly being proposed by the Revenue Mobilization Allocation and Fiscal Commission (RMAFC). The law makers, who are the servants of the people, should lead by example, by making the necessary sacrifices, which the ordinary Nigerians are already making.
The Tinubu’s government, provides the opportunity for a Nigerian Renaissance and if it’s to keep to the letters and spirit of its campaign mantra- A New Beginning. Nigerians of all social stratum, character and creed, must make and be seen to be making the necessary sacrifices, in order to change the optics and narrative of the inglorious past of our leadership, and even the follower-ship.
Let us all, at this time, put Nigeria first.
Some of our leaders, and institutions that are clamoring for increased salaries and allowances at this adverse period of our economic realities, do not seem to be aware of the impacts of stagflation on governments and citizens, which can be significant. Here are some potential effects:
1. Reduced purchasing power: High inflation can reduce the purchasing power of citizens, as the cost of goods and services increases faster than wages and salaries. This can lead to a decline in living standards and a reduction in consumer spending.
2. Unemployment: Stagnant, or even negative economic growth can lead to higher unemployment rates, as businesses may be less likely to hire new workers or may need to lay off existing workers to cut costs.
3. Reduced tax revenue: Stagnant economic growth can also lead to reduced tax revenue for governments, as businesses and individuals may earn less income and pay less in taxes.
4. Political instability: Stagflation can lead to political instability, as citizens may become frustrated with the government’s inability to address the economic challenges they are facing.
5. Increased government spending: In an effort to stimulate economic growth, the Tinubu’s government may need to increase spending on infrastructure projects or other initiatives. However, this can lead to higher government debt and deficits, which can have long-term negative effects on the economy.
6. This is where the ingenuity of a well selected team of economists and well meaning advisers that the president is expected to assemble, becomes critical. And I dare say, that by his initial appointment of Wale Edun, as his Special Adviser on Monetary Affairs, is indicative of the fact, that the economic team, would be constituted by sound men and women, who would extricate the country from its economic doldrums, and would stimulate the economy and position it for growth and meet the yearning of Nigeria and its International Development Partners. Thereby achieving the desired Sustainable Development Goals and Growth.
In concluding, and in a nutshell, stagflation is a challenging economic situation that can have significant impacts on both governments and citizens. It requires careful management and policy interventions to address both the inflation and growth challenges that are present.
NB: Sonny Iroche is a 2022/2023 Senior Academic Visitor at the African Studies Centre, University of Oxford, UK. He can be reached on Twitter:@IrocheSonny
