Controlling Nigeria’s increasing population growth rate has been suggested as a possible panacea to the country’s high inflationary pressure. This is according to a report prepared by Bode Agusto, titled: “Nigeria – Exchange Rate Management.”
According to the report, which analyzed the movement of Nigeria’s exchange rate against the US dollar amid a rising inflation rate, better population management and improved productivity will help reduce inflation in the long run. in Nigeria.
According to the World Bank, Nigeria’s population stood at 211.4 million at the end of 2021, an increase of 2.6% from the 206.14 million recorded a year ago. indicates that the population of Nigeria has increased by more than 5 million people in one year.
An excerpt from the report says: “Nigeria adds five million people to its population every year. This translates into a significant increase in demand for food, housing, clothing, health care and other things. On top of that, more than 22 million Nigerians, willing and able to work, are unemployed. We believe that if Nigeria is better able to manage its population growth (demand) and can get a larger proportion of its population to work and produce (supply), it can significantly reduce inflation over the long term..”
On the exchange rate
The report also highlighted the drawbacks of the floating exchange rate system currently adopted by the Central Bank of Nigeria, noting that only countries earning a lot of US dollars can effectively adopt a pegged exchange rate system.
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- “Countries that earn a lot of USD can peg their currencies to the USD. The most prominent examples are the oil-rich countries Saudi Arabia (since 2003) and Qatar (since 2001), there are others like Panama (since 1904) and Belize (since 1978) All of these countries would sell USD to willing buyers at the exchange rates they set.”
- “Can Nigeria sell USD at N420/$1 to anyone who wants to buy? The fact that Nigeria cannot has led to the development of a parallel market which commands a large premium. At N420/$1, everyone wants to buy USD from the Central Bank of Nigeria (CBN) but no one wants to sell it. This means that a rate of N420/$1 is below equilibrium and is unsustainable. Nigeria has tried several times in the past to peg the NGN to the USD and failed each time.”
However, the study recommended a sliding parity system. “This means that a country starts at a near-market LCY/USD exchange rate and then lets its currency depreciate (or appreciate) against the USD by close to the annual inflation difference. This is the option we recommend for Nigeria.”
- “Today, that means starting at an NGN/USD exchange rate of around NGN600/$1, then allowing the currency to depreciate by around 10% per year. It also means allowing knowledgeable and willing buyers to do business with knowledgeable and willing sellers at contract rates. The CBN can intervene in the market when rates are significantly above or below its target. Kenya and Botswana have successfully managed their exchange rates for a number of years using this option.