Since the start of the year 2021, Nigeria has been experiencing a deep recession, and it is going to affect its economy deeply. The main cause of this is the lack of foreign exchange inflows, which have been a prerequisite for any smooth economic and financial deepening in any country. Because of the lack of inflow of foreign funds, there are efforts underway by the Nigerian government to increase the inflow of funds. The central bank is also lending some amount to the country to tide over the crisis.
The government has taken some important steps to encourage the inflow of capital and encourage the economy. For instance, the president declared a one-day off for all government employees on January 1st, so that they can take time off and purchase necessities. The same applies to all the public servants except the police and army. In addition to that, there are some measures taken by the Nigerian central bank to liberalize the market. These measures include allowing more foreign currencies into the country's domestic money market. In essence, financial deepening and economic growth in Nigeria are being encouraged due to these measures.
The Nigeria financial deepening was completed during the second half of last year. Many economic analysts had predicted that this would occur during the first half of the year. However, financial experts were not expecting this to happen due to the fact that the inflows had been very minimal during the first half of the year. According to a media report, at the end of December last year, there were only $1.4 billion worth of foreign exchange inflow. This amount was less than the inflows throughout the whole year.
Financial deepening and economic growth in Nigeria will be possible only when the inflow of funds increases significantly. This is the only way by which the Nigerian economy can tackle with the crisis. However, financial experts are saying that things are not looking good for the economy at the moment. This is because the main problem facing the Nigeria economy is the declining exchange rate of the dollar against the Nigerian unit of currency.
The Nigerian government introduced a floating rate for the Nigerian unit of currency, which has a certain value. However, the floating rate is not fixed and may fluctuate in an unpredictable manner. This is what worries the traders the most. The traders feel that it is impossible to predict this trend. They also fear that the government may lose control of the economy if the exchange rate is too high against the local currency.
In order to help tackle the financial deepening and economic growth in Nigeria, the government needs to introduce some policies that will help to stabilize the economy of the country. For instance, the central bank of the country should fix the base rate for the FX market. It is essential for every trader to know this figure as this will determine how much he can earn from his transactions. The central bank also needs to intervene frequently in the markets and help stabilize them. However, it is difficult to intervene constantly in the markets.
The government could resort to a form of financial deepening. This is when it uses the foreign exchange for its intended purpose – to help stabilize the market and encourage economic growth. This is done by the government by offering cheap credits to its customers in the local market. However, this form of financial deepening and economic stimulation should be handled carefully and implemented well in order to avoid market manipulation.
This form of financial deepening and economic growth was introduced to help stabilize the economic situation of the country. However, some people who do not have any background in economics do not understand the need of the central bank to intervene regularly in the market. They believe that any form of financial deepening will automatically help them earn more money. However, the experts strongly advise against such an approach. They think that the correct approach to such issues is to carefully watch the market and predict where it might head.
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