Ii stylized facts on money supply inflation and

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II. STYLIZED FACTS ON MONEY SUPPLY, INFLATION AND GROWTH IN NIGERIA The Nigerian economy has witnessed substantial growth since the country’s attainment of political independence in 1960. The real value of gross domestic product (GDP) 1 jumped from N2, 489 million in 1960 to N4, 219 million in 1970 and therefore heaved to record about N31, 546
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Money Supply, Inflation and Economic Growth in Nigeria 149 million in 1980. Following the foreign exchange crisis of 1981–1986, accompanied by the downfall of international crude oil prices, the magnitude of growth skewed from the path it would have otherwise taken (See Figure 1). Economic growth witnessed a steady fall between 1980 and 1984 for thereafter regained momentum taking an upward trend there from. Thus, the growth rate of the Nigerian economy, which had averaged 2.5 per cent annually in the 1960s, climbed to an annual average of 10 per cent between 1970 and 1989. Industrial development is attributable to several factors and these includes amongst others, the rate of capital accumulation and saving, volume of trade, research and development, volume of external trade (exports) and so on 2 . The enormous fiscal expansion overtime is a key factor cannot be overemphasized. Monetary expansion, which reflects either demand for credit by the domestic economy or government fiscal expansion is a major determinant of inflation. Although with a lag, aggregate demand and inflation move in tandem. However an increase in real output, particularly food output, has a dampening effect on the general price level. It is pertinent to note that monetary and fiscal policy in Nigeria is conducted in an environment characterized by uncertainty and frequent economic policy somersaults. Also the development of an adequate framework for sustainable growth and development is complicated by inconsistent policies, bureaucracy and variations in environmental conditions either of a climatic nature or crises. Growth in money supply was substantial as broad and narrow money have exhibited upward trend overtime. Money supply, M1 and M2 grew rapidly from 16.3 and 19.4 per cent in 1995 to 48.1 and 62.2 per cent in 2000, respectively. The growth in monetary aggregates was due to factors such as: rapid monetization of oil inflows, minimum wage adjustments, and the financing of government’s fiscal deficits through the banking system. Credit to the private sector, by contrast, declined sharply from 48.0 per cent in 1995 to 23.9 per cent in 1997 and thereafter increased gradually to 30.9 per cent in 2000. However, it stayed within the prescribed limits in only three (3) out of the six-year time frame (1995-2000). Overall, the major source of liquidity was growth in credit to government in most of the years. Generally, inflationary pressure induced by high money supply has been one of the major factors that have consistently undermined the attainment of sustainable growth in Nigeria, even amidst persistent and robust economic reform packages.
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