The government of any country has a variety of economic objectives it seeks to achieve through the use of either fiscal, monetary or debt management policies.
These policies are not mutually exclusive but are often used along the line each other albeit one being more emphasised than the other to others.
In policy objectives, states seeks to achieve full employment of factors of production, price stability, balance of payment equilibrium and high rate of economic growth and development.
In trying to use monetary policies to achieve the four stated macro-economic objectives of state the monetary authorities do design a monetary package whose major variables are money supply, credit expansion/contraction, interest rate, manipulation, banks legal reserve requirement and special bank deposit with CBN.
Through these monetary instruments monetary authorities seeks to influence the state rate of inflation, the of unemployment, economic growth and balance of payment equilibrium. The success of any monetary policy depend on the magnitude of achievement of any of, of all the set of ultimate.
The basic fact with monetary of economic policy is that objectives are ever conflicting. The ability of the authority to achieve meaningful trade-offs in objective and still maintain the set goals stand them out as good managers.
The success of the 1987 monetary policy package can best be evaluated on the level of success or failure achieved on set targets.
One sad thing is that data on the Nigeria economy as a whole are not easily available and without correct and adequate data, evaluation are mere educated guesses. As at December the Central Bank was only able to collate figures on the economy up to August.
The Nigerian economy at the end of 1`986 was characterised by mass unemployment, scarcity of goods and raw materials, low industrial capacity, economic growth and low credit availability.
These features have been on since 1982 which led to the introduction of the Structural Adjustment Programme, SAP, in July 1986.
The economic policy proposed for the 1987 budget were predicated on the objective of the SAP. Thus the 1987 budget as a whole was designed to tackle most of the nations economic problems.
These problems include the nations continued heavy dependence on the oil sector for foreign exchange earnings, high levels of unemployment and inflation, low productivity in agriculture, low capacity utilisation in manufacturing, high debt burden and distorted patterns of domestic consumption and production.
A critical look at the 1987 monetary and banking policies shows that they were designed to be restive to moderate inflationary pressure (which was put at 19.5% in 1986) likely to arise from the operation of SFEM and FEM, stimulate local production of goods and services and ensure improvement in the balance of payments.
A growth monetary policy specifically set the following policy target
An aggregate bank credit 4.4 per cent
A credit expression of 1.5% for government and 8.4 per cent, growth in credit to private sector. The ratio of merchant banks loans and advances to their total asset was raised from 50 to 55 per cent.
The monetary authorities adopted a 15% interest rate ceiling on bank lending while a minimum interest rate of 11% was placed on savings deposit. Time deposits then attracted a minimum of 12% domiciliary account retained its 1986 2% point below the deposit rates in the relevant foreign currency.
These were the broad monetary policy targets at the beginning of the financial year. In August however the monetary authorities deregulated interest rates via CBN in monetary policy amendment circular No. 21 which altered interest rate structure by setting the minimum CBN rediscount rate of 15% the highest ever. Also th circular reduced the credit expansion limit from 8.4 per cent to 7.4 per cent the last quarter of the financial year. Foreign exchange disbursement forecast for the year put the N19.896 billion.
The policy for 1987 generated heated debate. The consensus then was that it was too restrictive and too tight for an ailing economy.
In June, at a special press briefing the minister of finance Dr. Chu Okigbo reviewed development within the economy for the first half of the year. From figures released and his comparison of the targets and achievement, a mixed divergences emerged. Also the Central Bank half year report on the economy was revealing and pointed to the same directions of both favourable and unfavourable outcome.
From CBN and the minister of finance’s records, while money supply was expected to record an all year increase of 11.8%, the observed increase for the half year was 6.2 per cent. This increase in money supply was 1.5% lower than the increased in 7.9% achieved in he first half of 1986.
The contraction in money supply to the domestic economy resulted in a credit squeeze that monetary authorities and helped to dampen inflation from its 1986 figure of 19.5% to less than 15% as at August 1987.
Most industrial establishment experienced low cash flow to the effect that they could not operate at half of their installed capacity.
This resulted in some industrial concerns being closed down and their workers thrown into the labour market.
Individuals and similar experience during the course of the year the Nigeria economy turned into a buyer’s market in place of the seller’s market known in the country. This was brought into being by the low cash flow in the economy that reduced the disposable income in the hands of consumers, in addition to high cost of production occasioned by high cost of money.
In order to break consumer resistence most companies had to spend quite sizeable amount on advertisement to induce consumers.
For the first time several marketing strategies were introduced by companies to boost their sales turnover.
Similarly, aggregate bank credit to the domestic economy went off the course of the observed increase of 4.2 per cent for the half year was already close to the projected 4.4 per cent increase.
The high credit expansion was mainly as a result of excessive government borrowing that was 100% above the year target for it. At the end of June money market asset outstanding totalled N28.3 billion over its December 1986 figure.
At the same period a total of N41.5 billion treasury bills issued while repayment amounted to N37.7 billion. This leaves the additional government borrowing from the source at N3.8 billion for the first six month of the year.
Federal government borrowing according to minister of finance Dr. Chu Okigbo in his June address was expected to rise to about N7 billion at the end of the financial year.
Government unrestrained borrowing only succeeded in fueling the same inflation its tight monetary policy was designed to fight.
Credit to the private sector for the half year was moderate and showed an increase of 405% when compared with the whole year target of 8.4 per cent.
The sector achieved a 6.3 per cent credit expansion during the first half of the year. But with the deregulation of interest rate and the subsequent high interest rates, the target of 7.4 per cent may not be met as investors are shying away from banks.
