Recently, Dr 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.
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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.
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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.
Balance of trade measures the monetary value of a country’s exports and its imports within a given period. Trade balance could be surplus, at equilibrium or deficit. It is a surplus when the value of exports exceeds the value of imports and a deficit when the value of imports exceeds exports. It is at equilibrium when the value of exports equals the value of imports. It is very rare for the trade balance to be at equilibrium. However, a surplus may not connote something good because a persistent surplus reduces the country’s products’ competitiveness in the international market as it leads to a continuous increase in the external value of the country’s currency. A deficit could be bad or good depending on the cause of the deficit. A trade deficit incurred as a result of the importation of capital or investment goods is good for the economy because it will in no distant time lead to an increase in productivity and exports, but a deficit incurred as a result of the importation of consumer goods is not in the best interest of the economy because it will worsen trade conditions over time. e. Balance of trade enhances economic stability when imports and exports are managed in a way that doesn’t hurt the economy – a manageable deficit or modest surplus will stabilise the economy.
The report showed that Nigeria’s trade balance for Q1 2025 remained positive at ₦5,172.31 billion. This represents an increase of 51.07 percent compared to the value recorded in the preceding quarter. Theoretically, the positive trade balance is supposed to have led to an appreciation in naira value, but it never did, probably due to a negative balance in trade in services, primary and/or secondary incomes of the country’s current account, or the supposed surplus is not real. Nigeria is a consuming nation; we import virtually everything. Hence, the declared surplus is questionable.
Government debt management is the process of formulating and implementing a strategy for managing government borrowing to raise the required amount of funding at the lowest possible cost over the medium to long term, in line with a prudent degree of risk. Economists are not averse to debt; what is pertinent is what loans are spent on.
Nigeria’s public debt stock stood at ₦149.39 trillion in the first quarter of 2025, up from ₦87.38 trillion in Q2 of 2023! This is a whopping 70.96 percent increase despite the fact that the government no longer pays fuel subsidies! Government spending of billions of naira of borrowed money on profligacies leaves much to be desired. It puts a question mark on the government’s sincere intention to put the economy back on track. A loan is a spending of future income; it ought to be spent on necessities and sectors that are critical to economic growth. The huge debt burden has serious negative impacts on present and future generations when the loans are not prudently spent. Some of these consequences are higher interest payments with their attendant opportunity cost in terms of reduced spending on healthcare and education. High debt burden reduces fiscal flexibility, making it difficult for the government to respond to economic downturns and other crises. It also has a crowding-out effect on private investment. Government borrowing can trigger higher interest rates, thereby leading to a fall in private investment. In extreme cases, the government might print more money to deal with debt, thereby worsening inflation.
Realistically, Nigeria’s economy is not yet stable. More still needs to be done to put the economy back on the path of meaningful growth.
Dr Okonjo Iweala concluded by saying, ‘What is needed next is growth.’
Economic growth does not just occur overnight; some factors stimulate it. The government has a vital role to play in this regard. Some of which are briefly explained below:
*The government needs to stimulate investment in education and training. This will lead to an increase in human capital; a skilled workforce will lead to increased productivity. The federal government introduced a student loan scheme to enable indigent students to access quality education. This is a welcome development, but such funds must be closely monitored to avoid diversion, and they should be easily accessible to students in need. Similarly, the introduction of free tuition, free accommodation and a monthly stipend of ₦22,500 per student in both federal and state technical colleges is commendable. The government should, however, do more to boost education and training.
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*Investment in tech and R&D is also sacrosanct to achieve growth. This will enhance innovation and boost productivity and efficiency. Our research institutions need adequate funding so that they can contribute reasonably to the growth of the economy.
*Export promotion and import substitution should be embraced. This will strengthen the naira. Appreciation in the naira value will automatically lead to a fall in the prices of fuel and other goods and services. This will lead to an increase in the standard of living and overall well-being. Importation should be limited to goods that cannot be produced locally. Trillions of naira spent on imported SUVs for government officers and political office holders when we have locally assembled SUVs is not in the best interest of the economy. We should borrow a leaf from Indira Gandhi when she was India’s prime minister. Our leaders need to make sacrifices if we are to grow Nigeria’s economy.
*A stable business environment is necessary for growth. There is a need to formulate policies that support business stability and encourage investment. The current fiscal policies are not investment-friendly. The government should apply expansionary fiscal and monetary policies, ably supported by supply-side policies such as investment in infrastructure like roads, internet and utility support businesses. The government should subsidise energy to reduce the cost of production. This will attract investors, increase aggregate supply, increase employment, increase GDP, increase government revenue from taxes and reduce inflation. Most of the advanced countries of the world still subsidise energy and other critical sectors.
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.
Rev. Akinbulu Adetunji, an economist, clergyman and management consultant, writes from Lagos. akinbului31@gmail.com
