Nigeria’s Central Bank Governor Godwin Emefiele and Turkish President Tayyip Erdogan seem to have something spectacular in common: making unconventional economic decisions without borrowing the caution of the sea of experts around them.
Last month, Nigeria’s inflation rate hit new highs, with the National Bureau of Statistics announcing that the inflation rate for July 2022 was 19.7% year-on-year. Compared to a year earlier, the new figure represents a jump of 2.27% compared to the rate of 17.38% in July 2021.
This means that on average, the purchasing power of Nigerians has diminished by this additional factor in the space of just one year, and they either have to spend more this year to enjoy the same level of satisfaction as last year. , or completely recalibrate their spending schedule now to maintain their level of satisfaction. standard of living of the previous year. Either way, consumers are worse off when inflation shows its ugly face.
Mr. Emefiele’s decision to raise interest rates in response to soaring prices has led to even more depressing results in the real economy. Many critics of his administration have warned of his poor policy choices and disregard for facing the country’s monetary dilemma headlong.
Perhaps Mr. Emefiele has hired the Turkish President as his private economic policy adviser since his political choices always seem to go in the opposite direction to what should have been pursued so far, as is the case with Mr. Erdogan.
Turkey’s current inflation rate is around 80%. While this staggering price level may have been fueled by instances such as an excessive capital account deficit and large foreign currency-denominated private debts, many believe that the emerging economic difficulties are largely caused by the style authoritarian government of the president and his lack of orthodoxy in the management of economic policy. .
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Turkey’s Statistics Agency reported that the country’s annual general price growth increased from 73.5% in May 2022 to 78.6% in June. Many economists in the Turkish field have blamed the price increases on rising oil and gas prices.
In response, the government resorted to increasing the monthly salary of about 40% of the national workforce from $254 to $328. Meanwhile, in Istanbul, the state chamber of commerce reported that inflation in the country’s largest city had peaked at an annual rate of 94%.
More telling is the figure released by a group of independent Turkish economists, whose assertion on the actual inflation figures deviates widely from what official government sources say. According to the group, consumer prices would have increased by 175% in June 2022, compared to the previous year.
These episodes of worsening prices trace back to the economy’s experiences during the European debt crisis in 2012 and the subsequent threat of interest rate hikes by the US Federal Reserve in 2013. These combined elements weakened the attraction of the Turkish lira and the value of the same remained submerged.
In 2018, Erdogan embarked on a “new economic model” as a strategy to see a return in the value of the national currency. This strategy, however, required setting aside rising inflation and instead focusing on cutting rates in the hope that economic growth would respond positively.
This idea was challenged by the head of the central bank, but resolute and adamant on his idea, the president maintained his ground. Due to the low interest rate policy amid a rising inflation rate, the lira plunged to record lows, pushing costs further north. This is particularly sad for a country that relies heavily on imports of energy and other materials.
Exacerbated by the Russian-Ukrainian war, energy and food prices in Turkey have skyrocketed. An inflationary spiral, precipitated by a series of interest rate dwarfisms ordered by the President in the hope that monetary stimulus would boost investment and exports, was back with a curse on the pound. As a result, import prices skyrocketed and the country’s citizens were plunged into an era of unnecessary hardship.
Nigeria’s story is not too different from Turkey’s. The two sovereign beings, in their different capacities, seem to care less about the ridicule they have caused their economies by pursuing suboptimal policies under the guise of trying to promote growth and monetary stability.
Nigerians are now resorting to meager budgets and deferred gratuities to adjust to the new reality upon them. While within the political watch, the situation does not seem to improve.
Perhaps policy makers should be more strategic in crafting plans that have more impressive mid- to long-term effects rather than just thinking about the length of their nose. Indeed, impressive short-term plans are needed to make some economic adjustments where possible, but longer-term policies play more persistent corrective roles that detail more deeply across multiple sectors (almost) simultaneously.
More importantly, however, policy choices – whether short, medium or long-term – must be appropriate to the situation, implemented in a timely manner and well representative of the country-specific identities for which they were created or chosen first.