ASSESSING THE EFFECTIVENESS OF MONETARY POLICIES IN COMBATING ECONOMIC RECESSIONS IN NIGERIA UNDER PRESIDENT TINUBU ADMINISTRATION

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

In 2023, the global economy shown remarkable resilience despite facing significant challenges such as high inflation not seen in decades and various other obstacles. These factors hindered global development but brought the world economy closer to its level of growth before the pandemic (Chase, 2024). The global economy faced challenges due to high prices impacting consumer demand, increased interest rates discouraging investments, decreased trade, and geopolitical tensions that undermined investor confidence and caused market uncertainties, as well as disruptions in supply chains (Chase, 2024).

Although the headwinds were strong enough to partially undo the post-COVID growth recovery of the global economy and push some major economies towards economic recession, they did not cause the resilient global economy to enter a recession. In fact, the economy emerged even stronger than anticipated at the beginning of the year (Gareth, 2024). In the Sub-Saharan Africa (SSA) region, economies faced numerous issues in 2023. These concerns included slow economic development, high levels of inflation, difficulties in maintaining debt sustainability, significant currency depreciation, and political tensions (Koni, 2024). The region's challenges were primarily local rather than global, although external factors in the global economy also played a role. The macroeconomic performance of the region reflected the effects of economic reforms, power challenges, and the depletion of oil fields in the top three economies of the region: Nigeria, South Africa, and Angola, respectively (Aregbeshsola, 2024).

Economic recessions pose substantial difficulties for any nation, especially in emerging economies such as Nigeria. Recessions are defined by a contraction in economic activity, resulting in decreased consumer expenditure, diminished industrial output, and heightened unemployment (Odion et al., 2022). In order to address these difficulties, governments and central banks use several monetary policies with the objective of fostering economic expansion, maintaining price stability, and diminishing unemployment. Monetary policy, as described by Jalade (2017), is a range of measures employed by a country's central bank to manage the aggregate money supply, stimulate economic expansion, and implement tactics such as adjusting interest rates and modifying bank reserve mandates.

Monetary policy is a method used to manage the economy and achieve sustainable economic growth and development. The concept of how money impacts economic aggregates has been recognized since the time of Adams Smith and has been further developed by monetary economists (Shanla et al., 2021). Monetary authorities are responsible for using monetary policy to stimulate economic growth, maintain price stability, achieve equilibrium in the balance of payments, and fulfil other macroeconomic objectives (Chase, 2024). Monetary policy has been employed in Nigeria since the Central Bank of Nigeria was entrusted with the task of devising and executing monetary policy under the Central Bank Act of 1958. This role has enabled the development of a dynamic money market where treasury bills, a financial instrument used for open market operations and government debt issuance, have significantly increased in both quantity and value. They have become a prominent investment asset for investors and a means of maintaining liquidity in the market (Dele et al., 2021).  There have been many monetary policy regimes in Nigeria, with periods of tight and loose monetary policy being employed primarily to stabilize prices. The economy has had periods of both development and decline. However, it is clear that the stated increase has not been sustainable, as there is evidence of increasing poverty among the population (Bassey et al., 2024). 

Nigeria, the largest economy in Africa, has encountered a multitude of economic obstacles throughout the years, such as volatile oil prices, political instability, and deficiencies in infrastructure. Nigeria's economy relies significantly on oil earnings due to its status as a major oil producer, rendering it susceptible to fluctuations in the global oil market (Odion, 2022). The nation's economic instability has been historically influenced by its economic structure and dependence on oil exports. President Bola Ahmed Tinubu, who took office in 2023, has implemented a variety of economic measures with the goal of stabilising the economy and fostering sustainable growth. The administration has placed a high importance on implementing changes in several industries, such as oil and gas, agriculture, and technology, with the aim of broadening the economy and decreasing reliance on income from oil (Joseph, 2024). The monetary policies enacted by the Central Bank of Nigeria (CBN) under his administration are crucial to these efforts. This study aims to evaluate the efficacy of these initiatives throughout President Bola Ahmed Tinubu's term.

1.2 Statement of the Problem

President Bola Ahmed Tinubu, who took office in 2023, has introduced many monetary policies to address the economic difficulties experienced by the nation. These policies encompass modifications in the Monetary Policy Rate (MPR), administration of exchange rates, and actions aimed at targeting inflation. Notwithstanding these endeavours, the efficacy of these measures in alleviating the detrimental consequences of economic downturns continues to be a crucial matter of apprehension.

Ajala (2023) notes that in times of increasing inflation, the implementation of higher interest rates or limitations on the money supply are both contractionary monetary policies aimed at reducing inflation. This strategy is now being implemented during President Tinubu's administration in Nigeria. Although the present administration has made attempts, Olawale (2024) says that the policy's downside is that its effects are delayed. Odunayo (2024) supports this claim by asserting that the macroeconomic impacts of monetary policy typically manifest with a delay, even if the policy is adopted promptly. The impact on an economy may require several months or even years to become evident (Olawale, 2024). Depending on the timing of the policy's implementation, Hakeem (2024) argues that the Tinubu administration has not taken any measures to alleviate the negative consequences of the policy. This has resulted in Nigerians experiencing hardships such as high inflation, decreased economic activity, increased unemployment, reduced consumer spending, and lower industrial production. Hence, the necessity for doing this investigation.

Objectives of the study

The primary objective of this study is to critically assess the effectiveness of monetary policies in combating economic recessions in Nigeria under President Tinubu administration. Specific objectives of this study are to:

To determine how changes in the Monetary Policy Rate (MPR) influences economic activity.

To assess the effect of exchange rate management strategies in stabilizing the Naira.

To assess the impact of inflation control on consumer spending and overall economic stability.

To identify the challenges faced in the implementation of monetary policies during President Tinubu's administration.

1.4 Research Questions

The following research questions which are in line with the objectives of this study will be answered in this study:

How does changes in the Monetary Policy Rate (MPR) influences economic activity?

What is the effect of exchange rate management strategies in stabilizing the Naira?

What is the impact of inflation control on consumer spending and overall economic stability?

What are the challenges faced in the implementation of monetary policies during President Tinubu's administration?

1.6 Significance of the study

Economic downturns pose substantial obstacles to all economies, especially in developing countries such as Nigeria. Efficient monetary policies are essential for reducing the negative impacts of recessions and promoting economic stability and expansion. This study evaluates the efficacy of monetary policies enacted during President Bola Ahmed Tinubu's tenure in addressing economic downturns in Nigeria. Comprehending the importance of this evaluation is crucial for a range of individuals with vested interests, such as legislators, economists, corporate executives, and researchers.

The paper presents empirical information regarding the influence of particular monetary policies, such as changes in interest rates and management of currency rates, on important economic indices. This evidence can provide valuable guidance to policymakers in developing more efficacious policies in the future. The report provides recommendations for enhancing policy execution and overcoming difficulties encountered by the Central Bank of Nigeria (CBN) and other relevant institutions by identifying issues in the implementation of monetary policies.

Furthermore, the study evaluates the effectiveness of inflation-targeting policies and financial inclusion efforts in preserving economic stability. The findings will aid in formulating measures that bolster the economy's ability to withstand future recessions. Moreover, comprehending the effects of monetary policy on both the stability and growth of the economy offers useful insights for investors. This can provide guidance for investing decisions and strategies in the Nigerian market. 

Furthermore, future scholars will utilise it as a thorough examination of the current body of literature. Consequently, other students with an interest in studying this subject will have the opportunity to utilise this work as reliable knowledge that can be comprehensively evaluated. 

1.7 Scope of the study

Broadly, this study focus is to critically assess the effectiveness of monetary policies in combating economic recessions in Nigeria under President Tinubu administration. Specifically, this study seeks to determine how changes in the Monetary Policy Rate (MPR) influences economic activity and assess the effect of exchange rate management strategies in stabilizing the Naira. 

Further, this study will focus on assessing the impact of inflation control on consumer spending and overall economic stability and it also seeks to identify the challenges faced in the implementation of monetary policies during President Tinubu's administration.

1.8 Limitations of the study

As is common in all human endeavours, the researchers faced minor limitations when conducting the study. The main limitation was the lack of extensive literature on the subject, as there is limited data available for assessing the effectiveness of monetary policies in combating economic recessions in Nigeria under President Tinubu administration. Consequently, a significant amount of time and effort was necessary to locate the appropriate materials, books, or information and to gather data. 

Additionally, this study is constrained by its small sample size and narrow geographical scope, focusing just on Nigeria. Consequently, the results of this study are not applicable for generalization, thereby leaving room for further research. 

Additionally, the researcher's limitations were primarily due to financial constraints, as they are a student and do not have a source of income to sustain themselves. It was challenging to afford transportation expenses to and from the study location due to the high cost of transportation, which is influenced by inflation in Nigeria today.

Furthermore, the researcher faced a time constraint due to the need to do this research while also fulfilling the obligations of attending lectures and other educational activities.

1.9 Definition of terms

Economic recession: Economic recession as: "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales

Inflation: Inflation is the rate of increase in prices over a given period of time. Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country.

Monetary policy: Monetary policy involves the management of the money supply and interest rates by central banks. To stimulate a faltering economy, the central bank will cut interest rates, making it less expensive to borrow while increasing the money supply. If the economy is growing too rapidly, the central bank can implement a tight monetary policy by raising interest rates and removing money from circulation.