Now that it is official ― the World Bank is dragging its foot on Nigeria’s request for a bailout loan because Nigeria is balking at implementing reforms, especially to its exchange rate regime ― we do well to consider both alternatives. Posed as an “either or” problem, it really doesn’t make that much sense. Truth is, both needs are all inclusive in one and the same response to our current existential challenge. Yet, there are downsides and strong arguments for either.
Back out the pass-through from higher fuel prices, though, and the main impact of a weaker national currency is on the affluent and the rapidly thinning ranks of the upper middle class. If the latest numbers on unemployment/underemployment from the National Bureau of Statistics serve as a guide, both these cohorts near extinction in the country.
This latter need is the central argument of those who would have us reform the economy as a central condition for granting us new loans. Take the conversation around the naira’s exchange rate. A market-determined rate would mean that the central bank does not have to break the bank maintaining the naira’s exchange rate at some artificial levels.