Member, Presidential Economic Advisory Council, Bismarck Rewane, has said the Central Bank of Nigeria (CBN) printed approximately N400 billion new notes following the currency redesign programme.
In a report titled: Nigeria Hits A Brick Wall, Rewane added that a shortfall of N2.48 trillion cash existed, leading to a near paralysis of commercial activities in the country. He said the shortfall represents 90 per cent of the cash in circulation.
According to Rewane, who is also the managing director of Financial Derivatives Company Limited, total money supply stood at N52 trillion.
He disclosed that three of the eight naira denominations- N200, N500 and N1,000 estimated at N2.88 trillion make up 90 per cent of total cash in circulation.
Rewane also said Nigeria’s Gross Domestic Product (GDP) size remains at $504.23 billion, with the informal sector at 30 per cent of the GDP and worth $151.27 billion.
He said informal sector transactions settled by cash are worth $5.14 billion while the velocity of circulation in the informal sector is 29 times.
According to him, a reduction in the velocity of money will lower output in the informal sector.
“The informal sector accounts for 30 per cent of formal GDP. It employs over 80 per cent of the total population. Transactions are mainly settled in cash and Point of Sale (POS). There is a linkage between the informal and formal economy,” he said.
He said the Federal Government, with the best intentions, decided to redesign the naira at the most inauspicious time.
Rewane said the policy has brought chaos and unintended consequences.
His words: “We are 12 days away from a monumental presidential election, and Nigerians are battling scarcity (fuel, cash & forex). Not only are these essential items in short supply, the queues and exorbitant prices accompanying them have worsened the cost-of-living crisis. While inflation dipped in December to 21.3 per cent, it is still at its highest level since 2005 and could be higher in the near term.”
According to him, consumers are not the only ones feeling the pinch. He said retailers are confused, investors are bewildered, and unsurprisingly, policymakers are supposedly helpless, evidently now stuck between a rock and a hard place.
Also, private consumption, which contributes 70 per cent to GDP, is squeezed, and investment inflows, already downhill, could fall further as the crisis of confidence persists.
“The macroeconomic impact of the downtime due to ATM queues, petrol queues and the cash crunch could result in a contraction of three to five per cent of GDP in the first quarter of 2023,” he said.