The Impact of Inflation, Subsidy Backlash, Taxes, and Loans on the Nigerian Economy

Feranmi Olaseinde

Feranmi Olaseinde

Aug 12, 20233 min read

0

The Impact of Inflation, Subsidy Backlash, Taxes, and Loans on the Nigerian Economy

Introduction:

The Nigerian economy is facing numerous challenges, including a growing inflation rate, subsidy backlash, tax issues, and the temptation of acquiring new loans. These factors have significant implications for consumers and the overall economy. In this article, we will explore the interconnectedness of these issues, discuss potential long-term policies, and provide actionable advice for the government to address these challenges effectively.

Inflation and its Impact:

The year-on-year inflation rate for May has risen by 1.13%, primarily driven by the continuous increase in food prices. This inflationary pressure, combined with contractionary monetary policies, poses significant challenges for both consumers and the overall economy. To mitigate the adverse effects, the government must implement effective social and economic policies that address the root causes of inflation.

Subsidy Backlash and the Unification of the Foreign Exchange Market:

The sudden removal of petroleum subsidy in Nigeria has had both positive and negative impacts on the economy. While the government may see it as a relief, the inflationary trend that follows such a policy change is not unexpected. Previously, when the subsidy was removed in 2017, the inflation rate surged, and the economy entered a recession. To avoid repeating history, the government must learn from past mistakes and ensure that the present policy is not reversed. It is crucial to keep the subsidy mafia in check and effectively communicate the medium and long-term policies to the public to build trust and support.

Taxes and Revenue Generation:

There is a misconception that developing countries impose low tax rates on citizens, leading to low tax collection relative to total revenue. However, it is important to understand that both saving and tax collection have negative impacts on the economy unless they are reinvested back into it. Increasing tax rates without considering income growth can hamper consumption, production, and employment. Therefore, it is essential for tax administrators to adhere to Adam Smith's canons of taxation, focusing on equity, certainty, convenience, and economy. By implementing effective tax collection methods, the government can boost revenue without burdening citizens excessively.

The Temptation of Acquiring New Loans:

The Nigerian government has been borrowing to meet monthly obligations, which has led to concerns about the country's increasing debt burden. It is crucial for the government to resist the temptation of acquiring new loans, especially when external institutions like the World Bank and the American Bank dangle them before the government. Instead, focus should be placed on finding alternative ways to meet financial obligations and reducing reliance on borrowing. The report serves as a cautionary reminder for the government to prioritize fiscal responsibility and explore sustainable solutions for economic growth.

Conclusion:

To address the challenges posed by inflation, subsidy backlash, tax issues, and loans, the Nigerian government must adopt proactive measures. Here are three actionable pieces of advice:

1. Implement comprehensive social and economic policies that address the root causes of inflation, ensuring gradual positive effects in the coming weeks.

2. Enhance tax collection methods by adhering to Adam Smith's canons of taxation, focusing on equity, certainty, convenience, and economy.

3. Resist the temptation of acquiring new loans and prioritize fiscal responsibility by exploring alternative ways to meet financial obligations and reduce reliance on borrowing.

By incorporating these strategies, the Nigerian government can navigate the current economic challenges effectively, promoting sustainable growth and stability.

Resource:

  1. "Inflation rate grows by 1.13% year-on-year for May, as food prices continues to rise ", https://nairametrics.com/2023/07/04/inflation-rate-grows-by-1-13-year-on-year-for-may-as-food-prices-continues-to-rise/ (Glasp)
  2. "Subsidy backlash, taxes and the banks", https://punchng.com/subsidy-backlash-taxes-and-the-banks/ (Glasp)

Want to hatch new ideas?

Glasp AI allows you to hatch new ideas based on your curated content. Let's curate and create with Glasp AI :)