August 31, (THEWILL) — Recently, Dr Ngozi Okonjo-Iweala, a famous regional economist, two-term finance minister during President Olusegun Obasanjo’s regime and currently Director-General of the World Trade Organisation (WTO), has this to say about President Tinubu’s economic reform: “Tinubu is to be given the credit for the stability of the economy, so the reforms have been in the right direction. What is needed next is growth.”
To start with, we need to understand what is meant by economic stability, relate it to the current economic reality to ascertain the validity or otherwise of her submission and have an overview of factors that stimulate economic growth, whether those factors are on the ground or not.
Economic stability is the absence of excessive fluctuations in the macroeconomy. Economic stability is a necessary ingredient for economic growth, as it enables households, firms and the government to plan and project into the future with some degree of certainty.
It makes the business environment predictable with minimal stochastic errors; it is one of the major macroeconomic objectives of any reasonable and responsible government.
An objective evaluation of Dr Okonjo-Iweala’s submission demands that we have a look at the features of a stable economy.
A stable economy is associated with low inflation, low unemployment, stable financial systems, trade balance and sustainable government debt management, among others.
Low inflation is an inflation rate that is less than 4 percent.
It is essential for growth and international competitiveness. However, any inflation rate above 4 percent should be monitored and controlled. Managers of the economy must make sure that the inflation rate does not exceed a single digit; if it does, it will get out of hand and be very difficult to tame.
Inflationary noise usually triggers further inflation; it should therefore be prevented. A high rate of inflation is a very serious macroeconomic problem that has severe negative consequences on the economy.
The NBS reported that the CPI rose to 125.9 in July 2025, indicating a 2.5-point increase from the previous month of 123.4. The inflation rate eased to 21.88 percent relative to 2025’s 22 percent. Realistically, a fluctuating double-digit inflation cannot be considered stable.
Economic growth is an increase in the real per capita gross domestic product of a country over a particular period of time. A steady growth occurs when the economy is growing at a rate that is insulated from demand and/or supply shocks. A steady growth is between 2 percent and 3 percent.
Steady economic growth is a sustainable growth rate that stimulates employment and increases people’s well-being. It reduces both positive and negative output gaps, harmonising potential and actual output.
Statistics showed that Nigeria’s GDP grew at 3.13 percent in the first quarter of 2025 over the same quarter of the previous year. A 13 percent growth rate is commendable if it is real growth and not nominal. Politicians prefer the nominal growth rate over the real because it gives the erroneous impression that the economy is doing well, which may not really be so, considering Nigeria’s current high inflation.
Nominal growth rate could be misleading because it is not adjusted for inflation. Real growth is the growth that is adjusted for inflation. When the real growth rate is achieved, it trickles down, leading to an increase in people’s well-being.
We need to ask ourselves, ‘Is an average Nigerian better off in 2025 than in 2023? If yes, then the growth rate recorded is real, but if not, it implies nominal growth has been used, which is not a reliable measure of a stable economy.
Low unemployment is also a major government macroeconomic objective. It occurs when the percentage of the labour force who are willing and able to work falls within the range of 3.5 percent and 4.5 percent.
Low unemployment reduces government expenditure on crime fighting and unemployment benefits (though this seems not related to Nigeria because officially, the government does not pay unemployment benefits), increases government revenues from taxes, reduces crime rates, increases GDP and enhances efficient use of the labour factor.
According to NBS, in 2020, the unemployment rate fluctuated from 4.2 percent in Q2 to 5 percent. The youth unemployment rate increased to 8.6 percent from 7.2 percent. It is on record that about 92.3 percent of Nigeria’s labour force is in the informal sector. In Q3 of 2022, the unemployed youth rate was 13.7 percent.
In Q1 of 2024, unemployment rose 5.3 percent, while it fell to 4.3 percent in Q2 of the same year. Any claim of a fall in unemployment may not be that reliable when companies are folding up due to a harsher business environment and a fall in aggregate demand.
It is worth noting that the NBS methodology for calculating the unemployment rate has been faulted in some quarters because it does not accurately reflect the actual rate of unemployment in Nigeria.
KPMG forecasts a rise in Nigeria’s unemployment to 41 percent in 2023. Objectively, it is not unlikely that the unemployment rate currently falls within the range that stabilises the economy and stimulates economic growth only on paper.
A financial system is considered stable when financial intermediaries, markets and market infrastructure enhance the smooth flow of funds between savers and investors. Such smooth flow stimulates employment, manages risks effectively, promotes people’s welfare and insulates the economy from aggregate demand and aggregate supply shocks.
The Monetary Policy Committee fixed the 2025 interest rate at 27.5 percent. This became imperative as a result of the high inflation rate. Interest rates must be higher than inflation rates to encourage savings and reduce aggregate demand. The real rate of interest will be negative if the inflation rate is higher than the nominal interest rate. However, high interest rates are a disincentive for investment; they not only discourage FDI and portfolio investment, but they also lead to a fall in GDP and the closing down of many companies, which further worsens unemployment and the fall in disposable income resulting from government contractionary fiscal policies.
This is one of the reasons why government efforts to attract FDI have not yielded any meaningful results. The current very high interest rate cannot stimulate desired growth. For interest rates to go down, inflation and interest rates must fall. This is yet to happen; the economy is still far from stable.
Summarily, growth will remain elusive in a country with a high interest rate, high inflation rate, high rate of unemployment, low purchasing power, high energy cost, high poverty rate and high level of insecurity.
***Written by Akinbulu Adetunji.
