Naira Crunch has far-reaching consequences on the Nigerian economy, the most baleful of which could be the slowing down of the economy.
What the Nigerian economy has been suffering in the last couple of weeks can be termed Naira Crunch. Simply defined, it is an artificial scarcity of the Nigerian national currency due to acts of omission by the controlling agency, the Central Bank of Nigeria, CBN.
Although the situation needs little illustration to understand, given that all Nigerians are living through it, a Naira Crunch is more like Cash Crunch defined by the Longman Dictionary as “when an organization does not have enough money to operate successfully or in the normal way”. This usually leads to bankruptcy.
So in a similar way, since Nigerians cannot find cash, their spending ability is limited. Going by the famous GDP equation, where government, private enterprises, and private firms must spend more in order for the economy to expand, the Nigerian economy is set to contract IF THE SITUATION PERSISTS.
The above also rings true when it is viewed from the perspective of monetary economists who place a high premium on the power of the concept of Velocity of Money. The velocity of money indicates the state of an economy; for example, a high velocity of money indicates that money is moving fast in an economy toward the purchase of goods and services.
This leads to high demand, and therefore, production will be increased. While in a low velocity of money state, very less people will be buying things or availing of fewer services.
We hardly need transcendental knowledge to decipher the current situation in Nigeria and what the scarcity of money has caused; fewer goods are being purchased.
The slow pace of the economy at this time could make nonsense of the recent optimistic reviews of the economy by Brettonwood, notably the International Monetary Fund, IMF, which estimated the economy to expand by 3.2 percent this year, up from 3 percent 3.0 earlier projected in its October 2022 World Economic Outlook.
While government consumption may be largely responsible for the movement of the expenditure line in a developing country like Nigeria, we cannot discountenance the contribution of a population that is more than 200 million strong.
It is on this note that Abuja Politico urges the Central bank to move swiftly to end the current Naira Crunch, which should lead to an increased velocity of money and consequently, an expansion of the economy or the GDP.
