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TABLE OF CONTENT
CHAPTER ONE
1.1
Introduction
1.2
Statement of Problem
1.3
Hypothesis Statement
1.4
Objective of the Study
1.5
Limitation of the Study
1.6
Definition of Terms
CHAPTER TWO
Literature review
2.1 Definition of
Central Bank
2.2 The Function of
Central Bank
2.3 The Role of
Central Bank in the Stabilization of the Economy
2.4 Exchange Rate
Policy
2.5 Foreign Exchange
Management
2.6 Debt Rescheduling
and Conversion
2.7 Monetary Policy
CHAPTER THREE
3.1
Research Methodology
3.2
Sources of Data
3.3
Sample of Data
3.4
Data Analysis Method
CHAPTER
FOUR
4.1
Detailed Analysis of Data
CHAPTER FIVE
5.1
Findings, Conclusion and Suggestions
5.2 Bibliography
A. Texts
B.
Journal
5.3 Appendix
A. Questionnaires
CHAPTER
ONE
INTRODUCTION
During the period of oil boom, price of oil were high ad Nigeria, being an oil
producing and exporting country, reaped benefits from this. However, it
did not last for ever and also had disadvantageous effects on the country
economy.
Due to the boom and many inappropriate policies introduced by government to
guide the economy, distortion were introduced into the vulnerable to external
stocks.
The
oil boom of 1970’s brought fundamental changes in the patterns of the Nigeria
economy.
First the oil boom resulted in heavy dependence of economy on crude petroleum
export as the main sources of foreign exchange earnings and government revenue.
By
1980, and oil sector which accoutered for 22 percent o the gross domestic
product (G.D.P) provided about 80 percent of government revenue and over 96
percent export earnings.
Secondly, the competitiveness of the agricultural sector in the international
market was ended by the over valued naira exchange rate. People turned
collar jobs in offices.
This
resulted to low productivity in the agricultural sector, which became so acute
that Nigerian became heavily dependent on imported goods and agro allied
individual inputs.
At that time, it was almost unbelievable that product like rice grow in Nigeria
because almost every used imported product in their
homes.
Infact using “made in Nigeria” product at times was a
sign of lack of exposure.
Exporter at that time, were compelled to surrender foreign exchange receipts to
authorize dealers and because of the over valued Naira exchange rate, the
official equivalent of the foreign exchange receipts often fell short of the
cost of non oil exports.
However, the world oil market started to collapse in mid 1981 and with
this collapse, the economic crisis which was quite fierce gripped the country,
though its magnitude and duration could not easily be measured or appreciated a
the time.
This
collapse together with the ineffective, adequate, inappropriate and indeed,
sometimes, not well reasoned policies guiding the economy at that time led very
serious economic collapse. Throughout the early 1980’s the structural
imbalance in the economy increased rapidly which resulted in persistent balance
of payments deficits, rising external debts and in sustainable debt burden,
currency over valuation declining production and of course, rising prices which
have been the most evident even to the illiterate. These problems in Nigeria
were not made better by the developed countries who adopted protectionist
policies for their economics.
The
drought of 1983 brought with it poor harvest which was also a contributory
factor to the inflation in prices. As this economic crises deepened,
internal and external debts mounted rapidly and the inability to pay these
debts increased rapidly and the inability to pay these debts increased just as
rapidly.
The
situation could just not go on. The Nigerian Government then started to
make efforts to find lasting, not short term, solutions to these problem which
threatened to destroy an economy which had a lost of prospects once. This
led to the adoption of several monetary and credit policy measures in 1981
which were designed to provide an optimum level of bank credit and to channel
such credit into the mere productive and small scale enterprises, which were
sectors of the economy, as a means of raising the level of employment and
output of goods and services. They were also aimed at
reducing further the rate of price inflation and maintaining a healthy of
balance of payment position.
However, these policy objective, were not achieved – a healthy balance of
payments position was clearing not achieved. Infact, it surveying from a
substantial surplus in 1980 to huge deficit 1981 as result of a sharp decline
of the country’s revenue from the oil sector. There was ineffectiveness
of import regulatory measures and therefore foreign expenditure increased
greatly.
This led to the adoption of the import licensing programme in 1984.
Under this programme, all imports were placed under specific import licensing
as to reduce the volume of imported goods and as a result reduce external
debt. In 1985, the Federal Government declared a fifteen month economic
emergency period during which specified proportions of worker’s salaries and
wages, as well as companies. Profits were compulsory paid to the
government.
These two programmes above were not efficiently restructuring the
economy. They had good effects on only some aspects of the economy.
This brought about more detailed search for more lasting solution to the
economy’s problems. As a result of this the Federal Government introduced
the structural adjustment programme (SAP) in July, 1986.
As all other programme before the structural adjustment programme have not been
effective in clearing the distortions in the economy. This project will
discuss this particular stabilization measure in greater detailed, more
positively directed and is still in use in the economy of Nigeria today.
This project reviews the stabilization measures which have been introduced for
balancing and improving the Nigeria economy from 1985 till date and examine the
role of the Central Bank in implementing these measures.
The direct role of the Central Bank in the structural adjustment programme was
programmed to include the design the implementation of the modalities for
exchange rate policy, foreign exchange management, external debt management
monetary and credit control and domestic monetary policy reforms.
The
Central Bank also offers advice to the Federal Government in areas such as
fiscal, external trade and other public sector policies.
In implementating and designing the modalities for the exchange rate policy,
the Central Bank calls for bills daily from authorized dealers for available
foreign exchange. Foreign exchange is sold to successful bidders, in effecting
foreign exchange management, the Central Bank of Nigeria took measures to
encourage the inflow of funds into foreign exchange market (FEM) from
non-official sources.
The
Central Bank in collaboration with the Federal Ministry of Finance also plays a
role in the management of external debt, especially with respect to reducing
the burden and volume (stock) of debt through debt rescheduling and debt
conversion. The policy of the economy is also formulated by the Central
Bank of Nigeria to support the government strategies.
The main sources of authority for the administration of foreign exchange
transitions in Nigeria is the exchange control Act 1962. Under provision
of this Act, authority for the grant of approvals in respect of foreign
exchange transactions is vested in the Minister of Finance. However, most
of the functions in respect of private sector transactions, visible importer,
education, medical, expatriate home remittances, travel, airline payments,
other services etc. have been delegated to the Central Bank of Nigeria, which
in turn has delegated approving authority for all but a few of these to the
authorized dealers on foreign exchange.
1.2 STATEMENT OF
PROBLEM
Due to the apparent and seemingly increasing distortions in the economy, such
as the constant decrease in the value and purchasing power of the Naira rising
price obvious loopholes in the management of foreign reserve and infact the
impact of the structural adjustment programme on the masses people in Nigeria
have resorted to the opinion that the Central Bank of Nigeria has not been and
is not playing its role I the stabilization of the economy effectively. A
lay man who is not aware of the Central Banking system will also not be aware
of the degree to which the Central Bank of Nigeria plays its role and this is a
problem for the Central Bank even through the people who have this opinion are
not to be blamed for it due to the lack of adequate communication between the
Bank and Public.
1.3 HYPOTHESIS
STATEMENT
This study will test the following hypothesis:
Main Hypothesis: The central Bank of Nigeria is
effectively playing its role in the stabilization of the economy.
The
following question will guide the researcher in data collection process.
a.
What is the main function of the Central Bank?
b.
In the CBN actively involved in the development and growth of the economy?
c.
Does the Central Bank of Nigeria have anything to do with the management of
money and capital market?
d.
Does the central Bank of Nigeria play a role in the debt rescheduling the debt
conversion programmes?
e.
Does the Central Bank of Nigeria play a major role in the
formulating and implementation of the monetary policy?
1.4 OBJECTIVES OF
STUDY
This project is aimed at educating Nigeria on the success of the stabilization
measures introduced in the economy and to show the role played by the Central
Bank of Nigeria. This topic was selected by the author due to the
appalling ignorance displayed by studies and a lot of the Nigerian citizen and
infact, professionals in various fields including the business profession.
1.5 DEFINITION OF
TERMS
Balance
of Payment Deficit: This occurs when the amount on the statement of total
payment of foreign countries for imports, outflow of capital, and gold is more
than the amount stated in the statement for total receipts from foreign
countries for export, outflow of capital and gold.
Economy:
A system for the management control and use of resource – money, goods and
other resources of a community.
Economy
Crisis: Occurs when the economy of a country is facing a difficult time
and is in danger with regards to the future.
Exchange
Control: The system of protecting gold and reserve of foreign currency.
Exchange
Rate: The relation in value between kinds of money used in different
countries.
Foreign
Exchange: The foreign equivalent for an amount of money of a country.
Monetary
Policy: A measure design to regulate and control the volume, cost and
direction of money and crdit in the economy of a country.
Policy:
A plan of action especially one made by a government political partly etc.
Stabilization
Measures: Steps taken to correct the imbalance in the economy of a
country when distortions are detected.
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