By Musbau Babatunde
The current cash crunch in Nigeria would lead to the halt,or closure of more than half of the economic activity in the informal sector, which primarily relies on cash transactions and accounts for approximately 65 percent of
Nigeria’s Gross Domestic Product (GDP),the Nigerian Economic Summit Group(NESG) has warned.
The group conveyed the warning in its presentation of a scenario-based outlook of the impact of the cash crunch on the
macroeconomic environment and its implications for Nigerians.
Commending the currency redesign policy of the Central Bank of Nigeria (CBN),the group observed that its implementation has come as a surprise and has exacerbated the challenges that are currently plaguing the Nigerian economy.
It said:”With a 65 percent share of the
informal sector,which relies on cash,
the prolonged cash blackout will disrupt
the economy.The currency redesign policy was introduced to address various issues, including banknote hoarding, currency counterfeiting, insecurity, price instability, financial exclusion, and the promotion
of a cashless economy in line with global best
practices.
“However, the poor implementation of
the new currency release has exacerbated the
economic situation, primarily due to the critical role of cash transactions in economic activities and the lack of preparation by economic actors for the rapid changes.
“Consequently, the country has experienced a
currency crunch, increased pressure on the
banking system and heightened social tensions.The impact on the economy will be
significant, with profound effects on trade and other sectors as business transactions become constricted and rigid.
“Additionally, it will further constrain the
investment climate and lower the year’s
investment level.The cash scarcity will distort the economy’s trajectory, highlighting the
need to revise and develop scenarios for
our macroeconomic outlook and
projections.
“The policy’s impact as we
advance depends on the CBN’s ability to
make the new note available and
alleviate the cash scarcity effectively.”
It also said that the present cash scarcity in Nigeria is expected to exacerbate the macroeconomic instability in the country, adding that the persistent inflationary pressure in the economy may intensify as the economy struggles to access cash and pay premiums to conduct economic activities.
“The cash scarcity associated with the currency redesign policy will likely slow
economic growth as many productive activities have been halted due to the
inability to access cash.
“Furthermore, the uncertainty associated with this policy and its economic effects may contribute to volatile movements in
macroeconomic variables. Thus, the following socioeconomic outcome would accompany the policy:worsening socioeconomic condition”