Financial and economic analysts on Tuesday expressed concerns over the looming ‘macro-economic instability’ in the country, saying patronage politics could make this year, which is a pre-election year, an economically harsh one.

According to them, a lot of money being piled up by politicians for elections next year, would be released into the economy this year, a situation they say might make the naira to lose value as well as cause high inflation.

An Associate Professor of Economics at the Ekiti State University, Dr, Abel Awe, said the situation defied what monetary authorities could use monetary measures or economic policies to control as “a lot of the money to be pumped into the system by politicians is outside the control of the Central Bank of Nigeria.”

He said, “This will cause demand-pull inflation. The consumer price index, which is measured by the prices of goods and services produced locally, may remain fairly stable. But there will be pressure on the exchange rate because of imported goods.

“Nigeria is an import-dependent nation and so, it will affect goods that are coming into the country. When you have too much money in circulation, it will affect the value of the exchange rate.

“I don’t know the kind of economic theory we can use to curb this other than to beg our politicians. I don’t think the CBN is in a position to control this because our democracy is highly monetised.”

The economist further noted that the Federal Government was not helping matter by making the 2014 budget’s recurrent expenditure over 70 per cent, while capital expenditure took less than 30 per cent.

The Chief Executive Officer, Lambert Trust Investment Company, Mr. David Adonri, said Nigerians needed to sound a note of warning to politicians to alert them to the harm that extra-budgetary spending would do to the economy this year, next year and beyond.

According to Adonri, pre-election year spending would lead to excess liquidity in the financial system.

This, he said, monetary authorities would respond to by controlling money supply through increase in interest rates and cash reserve ratio among others; a situation he said would deny the real sector of the funds and credit needed for productive activities.

Adonri said, “This is the time for Nigerians to beg the politicians and political officer holders not to allow extra budgetary spending to erode the macro-economic gains we have made so far.

“They need to avoid activities or call it patronage politics, which is capable of increasing inflation and causing macro-economic instability.

“The aim of the monetary authority is to ensure price stability. When the fiscal authorities engage in reckless spending because of elections, the only instrument the monetary authority has to control this is to tighten money supply through interest rates and what have you.

“My fear is that if politicians who engage in this practice get to power, we will still end up having more problems.”

Source: Punch (by Oyetunji Abioye)