Background
@Favour_Jubilee should create a new topic for this under Political > Govt schemes etc
Name it ESC Fiscal/Monetary Stimulus Package,
Get basic facts From the Nigeria’s Economic Sustainability Plan Document, then later from other publicly available sources.
We must keep our eyes on them in the media…
Tagz todo.Favour.
From the Nigeria’s Economic Sustainability Plan document.
Link.
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Fiscal and monetary measures will be taken to maximise government revenue and entrench a re- gime of prudence with an emphasis on achieving value for money.
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Our goal is to keep the economy active through carefully calibrated regulatory interventions designed to boost domestic value-addi- tion, de-risk the enterprise environment, galvanise external invest- ment and sources of funding while rationalising existing debt obli- gations and providing support to both the State Governments and business sectors negatively impacted by the COVID-19 pandemic.
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The role of government, (in the fiscal, monetary and real sectors) is to be the provider or facilitator of resources for private sector pro- grammes, and ultimately to ensure offtake of whatever is produced in the designated sectors. This means that government will arrange off-take for work done, houses built, or goods produced.
Monetary Stimulus
Monetary Stimulus describes actions to manage an economy’s money supply. Actions that make it easier to get cash and loans, to increase the supply of currency or reduce the interest charged by lenders, all fall under the umbrella term monetary stimulus. It is generally managed by a country’s central bank.
Monetary stimulus occurs when a central bank tries to boost the economy by managing the supply of money. In almost all cases this means that the government will try to increase the total amount of money in the economy and decrease the cost of accessing it.
How It Works:
Monetary stimulus works by adding new money to an economy or by making it easier to access that capital. Typically this works in one of two ways. The first way, and more traditional in the United States, is to make lending cheaper and easier by reducing interest rates. As rates go down, more businesses can afford to borrow money that they’ll then spend elsewhere, helping to move the economy along.
The second way, less traditional in the United States but more common in recent decades, is to simply inject additional cash into the economy, for example, with massive bond purchases. Literally the government will create more money, typically distributing it to banks. This makes money cheaper (because there’s more of it), encouraging businesses to spend it more freely.
How It Helps An Economy:
During a recession, business falls into what economists call a “negative feedback loop.” Essentially, as the economy slows down, businesses start to lose customers. With less revenue, they cut back on costs by laying off workers. Those workers now don’t have any income, and everyone else fears getting laid off a little more, causing people to save their money instead of spending it. This, in turn, causes the economy to slow down and businesses to lose even more customers.
Among the many problems this creates is the fact that much of an economy’s productive capacity goes to waste. Factories stop producing goods because there’s no one to buy them. Workers who could provide valuable services can’t find any customers. If someone had the money to hire those workers and buy from those factories, they could spring into action. They are only idle because no one has the cash in hand to pay them.
So, monetary policy tries to put that cash into people’s hands. By making loans cheaper or simply flooding the market with extra capital, the government tries to make it easier for businesses and consumers to spend money.
Ideally, this will put those idle workers back to work and create what is known as a “virtuous cycle.” By adding extra money to the economy, cash gets cheaper and easier to get. This makes it more likely that businesses and individuals can get that money and spend it at other businesses. Those businesses will hire workers to meet that new demand. These newly hired workers will, in turn, now have more money that they can go out and spend at other businesses, restoring strength to the economy overall.
Link.
Fiscal Stimulus
Fiscal stimulus describes actions to boost an economy through increased spending. When a government spends money by starting projects, hiring people or making purchases, this all falls under the umbrella term of fiscal stimulus. So, too, does distributing money for consumers and businesses to spend. Fiscal stimulus is distributed by a country’s government.
Fiscal stimulus, such as tax cuts or spending increases, can raise output and incomes in the short run by increasing overall demand. To have the greatest impact with the least long-run cost, the stimulus should be timely, temporary, and targeted. Timely, so that its effects are felt while economic activity is still below potential; when the economy has recovered, stimulus becomes counterproductive. Temporary, to avoid raising inflation and to minimize the adverse long-term effects of a larger budget deficit. And well targeted, to provide resources to the people who most need them and will spend them: for fiscal stimulus to work, it is essential that the funds be spent, not saved.
TIMELY:
Making fiscal stimulus timely is especially challenging because it involves not just enacting tax cuts or spending but also implementing them. For example, even once enacted, increased government appropriations may not translate into actual spending for quite some time. Poorly timed fiscal policy can destabilize the economy, intensifying rather than damping the business cycle: If fiscal stimulus is enacted too slowly, it might fail to prevent a drop in output and incomes or arrive after recovery has begun, leading to overexpansion and higher inflation.
TEMPORARY:
Fiscal stimulus should be temporary because, in the long run, the Federal Reserve generally keeps the economy operating close to full employment and full capacity through monetary policy. This means that, in the long run, fiscal stimulus would not increase output, but instead simply crowd out other economic activity or induce the Federal Reserve to tighten monetary policy to keep inflation down.
Over the long run, permanent tax cuts or increases in government spending that are not matched by changes on the other side of the ledger reduce national saving. The result is less investment or more foreign borrowing. This, in turn, diminishes economic growth and future national income. Also, larger expected budget deficits tend to push up long-run interest rates, which restrain investment and weaken net exports by pushing up the value of the dollar—effects that will undo part or all of the direct stimulative effects of lower taxes or higher government spending. Therefore, a temporary stimulus is likely to be more effective than a permanent policy change, and at a much lower long-run cost.
TARGETED:
Fiscal stimulus should be well targeted in two ways. First, it should go to households or businesses most likely to raise spending in response to the stimulus and thus increase gross domestic product in the short run. Second, it should provide the greatest benefit to the people most adversely affected by the slowdown. These two aspects of targeting are complementary. Higher-income households can generally smooth their consumption over the business cycle by drawing down their savings or borrowing. Therefore, directing resources to them will likely have little effect on consumer spending. In contrast, lower-income families are more likely to cut back their consumption in hard times. These families are likely to spend any additional money they receive from tax cuts or transfer payments, which helps protect them from the downturn while also boosting the economy.
Link.