Economic Development Policy Impacts

Arize Nwobu.

Six major factors enable economic growth and development and prosperity in a nation. 

They are, available resources, innovations, external influences, leadership, fiscal policy and monetary policy. It’s important to note that the factors are not listed in any particular order. 

The optimisation of the resources of a country engender economic growth, development and prosperity. 

Innovations catalyse economic growth by enabling a country to gain competitive edge and be better positioned to compete in the global economy and also attract foreign investments. 

External influences encompass foreign investments which are of two types- foreign direct investments( FDIs) and foreign portfolio investments( FPIs).

Both are energetic inflows which rev up the economy and contribute to growth but foreign direct investments are often preferred to foreign portfolio investments. 

Foreign portfolio investments also known as Hot Money are short-term speculative funds which seek quick gains in other countries. 

They are volatile and impatient capital and which can exit the economy impromptu and their exit is often enmasse and can destabilise markets and the economy. 

Foreign direct investments are often preferred because they are patient capital which are loyal to the host economy. 

They create multiplier effects and enable economic growth through jobs creation, human capital development, technology transfer, creation of a competitive market, improved capital inflow, exchange rate stability etc. 

The leadership of a country steers the ship of state through policy formulation and enforcement of law and order. 

Selfish, irresponsible and ineffective leadership lead to economic despoliation, stagnation and vicious circle of poverty. 

But, selfless, effective and visionary leadership leads to productivity, positive change and virtuous circle of prosperity. 

Singapore was transformed by its first Prime Minister, Lee Kuan Yew through effective and responsible leadership.

Lee Kuan Yew introduced economic reforms and instituted policies that promoted meritocracy, multiculturalism and anticorruption.

He was noted to have said that, “the ultimate test of the value of a political system is whether it helps that society to establish conditions which improve the standard of living of its people.”

Policy is simply what government or institutions decide to do or not to do. Policies are made to achieve target objectives and they can make or mar. 

Governments use fiscal policy to influence and fortify the economy for sustainable growth, poverty reduction and prosperity. 

Central banks use monetary policy to achieve price stability and attainment of macroeconomic policy targets. 

Effective alignment of fiscal and monetary policy creates synergy, stability and catalyses economic growth. 

Successive governments in Nigeria have evolved and implemented different fiscal policies to move the needle of the economy and they have achieved some notable transformations, but the basic structure of the economy has remained the same. 

The economy is still largely mono-product with oil accounting for about 90 percent of exports, 25 percent of GDP and 80 percent of government revenue.

As a result,  the economy is still very vulnerable to external shocks in a globalised economy. Drastic change in global oil price can readily destabilise government projections and which will make the government to resort to either Ways and Means advances or external borrowing or both.

Ways and Means advances and external debts can fuel inflation if they exceed necessary limits.

The previous administration of President Muhammadu Buhari has been noted to have “over- used” the Ways and Means advances in addition to accumulating foreign debts.

Both the Ways and Means and foreign debts were said to have grown at greater rates than the GDP and contributed to inflationary pressure. Dataphyte noted that “the out-gone President Muhammadu Buhari abused Ways and Means and violated the CBN Act”.

According to Dataphyte, section 38(2) of the CBN Act stipulated that “the total amount of such advances outstanding shall not at any time exceed five percent of the previous year’s actual revenue of the federal government.”

It noted that “Buhari overshot the five percent ceiling and grew Ways and Means from N856billion to N23.8trillion, representing 2,635 percent in seven years.”The development is widely believed to have fuelled inflation and  President Tinubu’s removal of fuel subsidy escalated it. 

Some analysts have observed that fuel subsidy removal was necessary and expedient in the circumstance but that the government should have created necessary buffer mechanisms to cushion the harsh inflationary impact on citizens. 

Holistically, the present inflation is driven by transportation costs, supply constraints, Insecurity,.exchange rate volatility, fiscal policy and the corollary increase in money supply.

Inflation determines how a central bank regulates money supply. The Central Bank of Nigeria( CBN) adopted a contractionary monetary policy and launched an aggressive fight against inflation. CBN consistently increased the Monetary Policy Rate( MPR) and also adjusted other monetary policy tools including the Liquidity Ratio( LR) and Cash Reserve Ratio( CRR) of banks. 

The apex bank started using regular Open Market Operations( OMO) to mop up the excess liquidity  from the banking system and offered Treasury Bills with three tenors.It also introduced new foreign exchange guidelines to address the devaluation of the naira and achieve exchange rate stability. 

Under its successive Governors, CBN has always been a backbone with the formulation of monetary policies that have helped to support and stabilise the financial system and economy especially in challenging and critical times. 

In a press report, CBN Governor, Yemi Cardoso noted that the Bank had made key reforms which aimed at strengthening the financial system and was resolute in ensuring macroeconomic stability through sustained reforms.

Recently, Cardoso was named as the Central Bank Governor of the year at the 2025 African Banker Awards held in Abidjan,  Cote d’ Ivoire.

The award was received on behalf of the CBN Governor, by Dr Nkiru Balonwu, Adviser to the Governor on Stakeholder Engagement and Strategic Communications.

It was in recognition of Cardoso’s leadership and “for implementing key policy measures aimed at stabilising the naira, improving transparency in the foreign exchange market and re-establishing policy credibility.”

Nwobu, a Chartered Stockbroker and Business Journalist wrote via arizenwobu@yahoo.com Tel 08033021230.