In just one year, Nigeria’s money supply has skyrocketed by 51%, hitting N108.96 trillion in November 2024, compared to N72.02 trillion in November 2023. This massive growth is largely due to a combination of naira devaluation and the Federal Government’s increased borrowing. While the surge might look like economic growth on the surface, it’s creating serious challenges—inflation is now at 34.8%, making life harder for millions of Nigerians.
Let’s dive deeper into what’s driving this rise, why it matters, and what the future could hold.
What’s Behind the Money Supply Surge?
Several factors have contributed to this unprecedented increase in Nigeria’s money supply:
1. Government Borrowing from the Central Bank (CBN)
The Federal Government has increasingly relied on ways and means advances—essentially borrowing directly from the Central Bank of Nigeria (CBN)—to cover budget deficits. This has injected more naira into the economy, causing money supply to balloon.
2. Rising Net Foreign Assets (NFA)
Higher net foreign assets have also driven the money supply. However, in recent months, NFA has shown signs of decline, which may limit its contribution going forward.
3. Persistent Fiscal Deficits
Continuous fiscal deficits mean that the government is spending more than it earns. To cover these shortfalls, it borrows more, adding further pressure to the economy and increasing the money supply.
The Inflation Crisis: A Tougher Life for Nigerians
The sharp increase in money supply has led to a surge in inflation, which hit 34.8% in December 2024—one of the highest rates in recent history. With more money in circulation and no corresponding increase in goods and services, prices are soaring. This means:
- Higher Cost of Living: Basic necessities such as food, housing, and transportation become increasingly expensive.
- Tougher Business Conditions: Rising costs reduce profit margins for businesses and discourage new investments.
- Sustained Pressure on the Naira: The naira remains under pressure, losing value against major foreign currencies.
What Does This Mean for You?
If this trend continues, the following impacts are likely:
- Everyday expenses will keep rising, straining household budgets.
- Businesses may face more challenges, including higher operating costs and reduced access to credit.
- The naira may remain unstable, making imported goods more expensive
Is There a Way Out?
While the situation is concerning, some steps could help Nigeria regain stability:
- Economic Reforms: Structural reforms are necessary to diversify the economy and reduce dependence on oil revenues.
- Controlled Government Spending: Reducing reliance on borrowing and ensuring prudent fiscal policies will help curb inflation.
- Stable Forex Policy: A well-managed foreign exchange policy can help strengthen the naira and reduce inflationary pressures.
Conclusion
Nigeria’s rising money supply and surging inflation are serious challenges that require immediate attention. For individuals and businesses, it’s essential to plan for tougher economic conditions and adapt to rising costs. However, with the right policy mix—economic reforms, controlled spending, and a stable forex regime—Nigeria can chart a path toward recovery and growth.
Insightful