16 Apr, 10 tweets, 3 min read
The problem is not the printing of money. Its how you release that money into the economy. Let's break this down using the economy function

Y = C + I + G + (X-M)

Y = GDP
C = Private Consumption
I = Investments
G = Government consumption
X-M = Net Exports (exports - imports)
The best way to understand this is to use numbers so let's imagine Y = 100 and broken down as follows:

Y(100) = C (80) + I (10) + G (13) + X-M (-3)

This basically shows how we arrive at Y. If you want to grow Y, you can find a way to increase C or I or G or make X-M +ve
NBS has the breakdown for Nigeria in its 2020 GDP and its more like this

GDP = C (62) + I (16) + G (9) + X-M (13)

Source: NBS
Now when you have these numbers its a game of multiplication. Which of these 4 sectors has the best multiplier such that if you flush cash into it, you get the highest outcome in Y?

Economics teaches us that I - capital formation is the way to go. Better infrastructure...
would boost productivity of households, enabling them increase C and potentially X-M if the goods international standard. You can also give the money to C via stimulus cheques, social programs (trader moni and so on) but its short-lived and has no real lasting impact on Y
But it does have an impact because C is the largest portion of Y. So even if the multiplier effect is just 2x, its greater than 5x in G.

We can also use historical figures to confirm these multiplier effect. Look at how much G has grown in the past 5 years & compare GDP growth.
So while govt consumption has grown 148% in the last 4 years, GDP has grown 2% in market terms (not basic). Private consumption has also grown but only 6%. Kudos to govt and private, capital formation is up 9% but net exports is down 38% due to oil.

My point is simple...
Printing money for G is a waste of time, achieves nothing because even with a 148% growth in G, the economy has only grown 2%.

Stears has done an amazing thread to show how CBN has tried to stimulate C via agric loans etc. They should also recall loans to power, film & fashion
CBN has tried but a combination of factors that need to be addressed on the fiscal side - insecurity (farmers cant go to farm - herdsmen, terrorists, bandits - pick a name), market-determined prices in the energy markets to support development of power infrastructure, Land use...
reforms and merging of national data records to support development of proper credit histories and mortgage markets for real estate...

I could go on. These issues will continue to limit the CBN's ability to print money to solve issues.

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