Fatshimetrie’s in-depth analysis of Nigeria’s monetary policy and financial landscape in August 2024 reveals significant developments and trends that shed light on the country’s economic direction. The latest data on Nigeria’s broad Money Supply (M2) indicates a notable 62 percent increase year-on-year, reaching N107.2 trillion compared to N66.19 trillion in the corresponding period of 2023.
This surge in M2, comprising Quasi Money and Narrow Money Supply, is a reflection of the changing financial dynamics within the economy. Quasi money, encompassing savings deposits, time deposits, and other near-money assets, experienced a substantial growth of 75.2 percent year-on-year, soaring to N72.2 trillion from N41.2 trillion.
Narrow Money Supply (M1) also saw a notable uptick, escalating by 43 percent year-on-year to N34.9 trillion from N24.4 trillion in August 2023. These figures, against the backdrop of prevailing economic challenges and demographic disparities, underscore the evolving financial landscape in Nigeria.
The Central Bank of Nigeria’s Money and Credit Statistics data further illuminates the prevailing trends, highlighting a consistent uptrend in M2 following a temporary decline earlier in March 2024. The positive changes in the components of the money supply indicate a dynamic financial environment shaped by various factors, notably high government domestic borrowing from the private sector.
The increasing demand deposits in banks, rising by 40 percent year-on-year to N31.08 trillion, and the growth in currency outside banks by 77.2 percent year-on-year to N3.9 trillion, further underscore the evolving financial dynamics in the country.
Notably, credit to the government surged by 38.4 percent year-on-year to N31.15 trillion in August 2024 from N22.5 trillion in August 2023, reflecting a significant reliance on public borrowing to finance governmental operations. In contrast, credit to the private sector witnessed a year-on-year increase of 31.2 percent to N74.7 trillion in August 2024 from N56.9 trillion in August 2023.
The intricate interplay between government borrowing, private sector credit, and the resultant impact on money supply underscores the delicate balance within the country’s financial ecosystem. As Professor Ndubisi from the University of Lagos pointed out, the surge in money supply is intricately linked to government borrowing activities in the domestic market, particularly through securities transactions handled by the Central Bank.
These financial maneuvers not only influence the overall money supply but also have ripple effects on economic variables such as prices, investment flows, and overall economic stability. Effective management of these financial dynamics is crucial to ensuring sustainable economic growth and stability in Nigeria.
In conclusion, Nigeria’s evolving financial landscape presents a complex tapestry of monetary trends, government borrowing dynamics, and private sector credit expansion. Understanding these nuances is crucial for policymakers, economists, and market participants to navigate the ever-changing financial terrain and steer the country towards sustainable economic prosperity.