Naira shortage: Former statistician-general predicts N15 trillion cost on economy

Ongoing currency shortage, which has imposed devastating impact on Nigeria’s economy will likely cut the nation’s nominal gross domestic product for the first three months in 2023 by as much as N15 trillion, former statistician-general Yemi Kale has said.

– Key points to note

Gross Domestic Product measures the size of a country’s economy by highlighting the value and volume of all the goods and services produced within a particular period. Nominal GDP does not discount inflation in its measurement.

Nigeria’s nominal GDP for the first quarter of 2022 was N45 trillion, up from N40 trillion a year earlier. Real GDP, the value when price changes are ignored, was N17.4 trillion.

The nominal GDP for the last quarter of 2022 was N57 trillion.

Mr Kale, now the chief economist at KPMG Nigeria, said the nation’s economy would lose between N10 trillion and N15 trillion as a result of the naira crunch.

“I am estimating a reduction in Q1 2023 nominal GDP by between N10-15 trillion due to challenges sourcing cash in Q1 2023,” he wrote on Twitter on Tuesday.

– Why this matters

The cash crisis, which began in October 2022 when the central bank announced that new naira notes would be introduced in higher denominations to fight counterfeiting and hoarding, has badly affected businesses in an economy that is heavily cash-dependent.

Many small businesses have closed or reduced their operations, and residents have been unable to meet basic daily needs. The Central Bank of Nigeria on Monday finally authorized the continued use of old notes to compliment insufficient new bills – more than a week after the Supreme Court ruled it should do so.

– Learn more

Mr Kale, whose work as statistician-general included measuring the nation’s GDP, said about 40% of the N198 trillion economy is informal of which about 90% is cash-based. Another 30% of the formal sector is cash-based, he said.

Buttressing growing concerns about how the botched naira redesign policy has affected the economy, he said it would be important to measure how economic growth decline caused by the policy will compare against curbing inflation, which is one of the central bank’s stated aims of the policy.

“Assuming there is a decline in inflation rate which I anticipate (though marginal) when @NBS_Nigeria publishes their inflation report, we can then compare if the gains in inflation in Q1 2023 outweighs the expected decline in GDP &possibly other macro & socioeconomic variables,” he said.

“Recall employment is also tied to GDP growth- a slowdown in growth will have a negative impact on employment. On the other hand, both a reduction in inflation & growth in GDP can improve poverty rates. So, it will be interesting to see which dominates the overall economic wellbeing.”