Monetary policy is the combination of measures designed to control the level of money supply,
interest rates and credit in an economy in tandem with the desired level of economic activity.
The fundamental goals of monetary policy are attainment of low inflation and sustainable
economic growth. Other objectives include full employment and stable real exchange rates. In
Nigeria, The Central Bank of Nigeria (CBN) is charged with the formulation and conduct of
monetary policy (Central Bank of Nigeria Act 1958, 1991 and 2007). Its monetary policy thrust is
to control money supply and interest rates in order to achieve the ultimate goals of price
stability and economic growth (Central Bank of Nigeria, 2011a).
Since 1959, the monetary policy of the Central Bank of Nigeria has been conducted under two
divergent frameworks. These are the exchange rate targeting and monetary targeting regimes.
The exchange rate framework was used between 1959 and 1974. Under this regime, the value
of Nigeria’s currency was pegged to the British pound, then to the American dollars and
afterwards to a basket comprising the currencies of twelve Nigeria’s major trading partners. An
advantage of the exchange rate framework is that it provides an easily monitored nominal
anchor to guide price stability. However, in the face of excessive monetary expansions and
fiscal dominance, this framework can lead to increased inflationary pressures that erode
international competitiveness and create current account imbalances (Mason, 2006). In Nigeria,
the collapse of the Bretton Woods system of fixed exchange rates in 1974 and a change in
strategy to demand management as a means of containing inflationary pressures and balance
of payments imbalances posed challenges to the effectiveness of the exchange rate targeting
framework (Central Bank of Nigeria, 2011a).
8.6 Challenges to Economic Policies in Nigeria
The challenges to the effective implementation of monetary policy include the following: a) Operating
Cost - This mainly refers to the cost of liquidity management. The central bank when it sells or buys
securities incurs some cost in interest payments. Also, when banks make deposits in the central bank,
interest is paid on allor some part of the deposits. The ability of the central bank to maintain a desired
Ievel of liquidity in the economy would be affected by the amount of resources available for interest
payments, and for meeting other cost of liquidity management.
b) Fiscal Dominance - As the name implies, this relates to the domination of monetary policy by
government revenue and expenditure activities. It is often the case that when the central bank wants to
reduce money supply in the economy in order to contain inflation pressures, the government continues
to engage in expenditure patterns that cause money supply to increase. This, makes the achievement of
the objectives of monetary policy, particularly lowinflation difficult.
c) Structural Rigidities -This concerns factors that inhibit the free flow of resources between producers
and consumers. These factors often lead to artificial price increases that have not arisen because money
supply grows faster than the production of goods and services. Such factors may include poor
infrastructure and market cartels. In the presence of these factors, even if policymakers are able to
ensure appropriate policies, they do not reach the targeted objectives.
d) External Shocks - These are external shocks that affect monetary policy through the foreign exchange
rate of the naira. Developments like decline of crude oil price at the international oil market that cause
exchange rate depreciation often limnits monetary policy's ability to achieve the price stabilty objective .
This is because exchange rate depreciation leads to increase in prices of imported goods which in turn
lead to a rise in the domestic price level.
Apart from the ten-year plan between 1946 and 1956 under Arthur Richard Constitution in the colonial
era, development planning in Nigeria can be classified under three eras.
These are (a) the Era of Fixed- Term Planning (1962-85), (b) the Era of Rolling Plan (1990-1998), and (c)
the era of Democratic Dispensation (1999 till date). Immediately after independence the country
embarked on series of
development plans, namely:
Øthe First National Development Plan (1962-68);
Øthe Second National Development Plan (1970-74);
Øthe Third National Development Plan (1975-80);
Øthe Fourth National Development Plan (1981-85); and
Øthe several attempts made, beginning from the close of 1984, to prepare a fifth National Development
Plan (1986-90),
With the economic crisis during the structural adjustment program (SAP) era, a fixed five- year plan was
no longer ideal under the emerging uncertainties and pressing issues that called for urgent solutions
An indicative option that will orderly roll one plan into another was embraced by the Babangida
administration (1984-1993) Such a perspective plan which covered three years at a time were subjected
to review every year to evaluate our performance and ascertain whether the economy is on course.
The main objective of the 1st National Rolling Plan (1990-1992) was to consolidate the achievements
made so far in the implementation of the SAP and address the pressing problems still facing the
economy; such as the strengthening of the on-going programmes of the National Directorate of
Employment (NDE).
The 2nd National Rolling Plan (1993-1995) focused on tackling the observable lapses and inefficiencies in
the operation of monetary and credit instruments, low level of capacity utilization of industries and the
rising trends of unemployment.
The 3rd National Rolling Plan (1994/96) and the 4th Rolling Pan 1997/99 Rolling Plans had employment
generation as their priority programmes, among others With the returned to democratic governance in
Nigeria, President Obasanjo’s administration started development planning in 1999 with the initiation of
a four-year medium term plan document, the National Economic Direction (1999-2003).
This first plan under democratic governance was aimed at the development of an economy that is: (a)
highly competitive, (b) responsive to incentives, (c) private sector-led, (d) diversified, (e) market-
oriented and open, but (f) based on internal momentum for its growth.
Thus, the plan had the primary objective of pursuing a strong, virile and broad- based economy with
adequate capacity to absorb externally generated shocks.
However, despite its being a new plan document under democratic system, its objectives and policy
direction were not significantly different from those since SAP era to which the country has followed
Thereafter, in his Second Term, President Obasanjo put in place the National Economic Empowerment
and Development Strategy (NEEDS) to accelerate growth and reduce poverty.
NEEDS was a four-year medium term plan for the period 2003 to 2007.
expected the states and local governments to have their counterpart plans as:
ØThe State Economic Empowerment and Development
Strategy (SEEDS); and
Øthe Local Government Economic Empowerment and
Development Strategy (LEEDS).
However, NEEDS as a Poverty Reduction Strategy Program (PRSP) suffered from the shortcomings and
inadequacies such as:
Øweakness on poverty diagnostics;
Øcosmetically descriptive rather than analytical
approach; and
Øweakness in the setting of economic targets.
As many African leaders toed the initiative of their counterparts to address numerous problems through
the opportunity provided by the Millennium Development Goals (MDGs) for solving them; President
Yar’Aduaadministration joined them by inserting the MDGs into the major policy focus of his
administration as well, when he took over in 2007. He therefore floated the seven-point agenda as the
major policy thrust of
his government.
ØCritical Infrastructure;
ØNiger Delta;
ØFood Security;
ØHuman Capital Development;
ØLand Tenure and Home Ownership;
ØNational Security and Intelligence; and
ØWealth Creation
The follow-up transformation agenda of President Jonathan was thereafter designed for continuity,
consistency and commitment popularly referred to as the “3cs”.
The agenda was expected to (a) facilitate effective coordination of fiscal and monetary policies, (b)
create jobs , (c) improve public expenditure management, (d) maximize the benefit the entire Nigerian
citizenry derives from good governance, and (e)instill proper financial management and fiscal prudence.
Others are to (i) improve the judicial system, (ii) improve our foreign policy by inserting the principles of
Economic Diplomacy and funding our foreign mission properly and (iii) improve the legislature for
optimal and proactive performance.
However, the agenda was challenged by the rising insecurity, unemployment, inequality and poverty In
his address at inaugurating the Steering Committee for the Development of Nigeria Agenda 2050 and
the Medium-Term National Development Plan 2021–2025, President Buhari stated that:
The Development Agenda 2050 is the Successor Plans to the Nigeria Vision 20:2020 and that of the
Economic Recovery and Growth Plan (the “ERGP”)
2017–2020.
While the ERGP was for: (a)restoring and sustaining growth; (b) investing in
Nigerian people; and (c) building a globally competitive economy, it equally shared similar ideas with the
20:2020 vision in terms of its articulation of the long-term intent to launch Nigeria onto a path of
sustained social and economic development.
However, to ensure continuity and efficiency to both both 20:2020 and the ERGP (both of which lapse in
December 2020); the Successor Plans have its main objective, among others, to lift 100 million Nigerians
out of poverty within the next 10 years