MONETARY AND FISCAL POLICIES AS EFFICIENT TOOLS FOR ECONOMIC STABILITY WITH SPECIFIC TO CENTRAL BANK OFNIGERIA

MONETARY AND FISCAL POLICIES AS EFFICIENT TOOLS FOR ECONOMIC STABILITY WITH SPECIFIC TO CENTRAL BANK OFNIGERIA(AWKA-BRANCH

ABSTRACT

This research work, dealt with the monetary and fiscal policies as efficient tools for economic stability. This research work was done to examine the monetary and fiscal policies and ascertain how effective they have been in making the poor conditions of the rural area affairs. To ascertain why there should be poor unemployment in the economy despite the existence and fiscal policies and to identify the country’s economic problems with a view to offer lasting solution to them. The method for sourcing date used for this research was primary and secondary data. Primary data includes; questionnaires comprising statement drawn from research, questionnaires formulated and oral interview. While secondary data includes the use of textbooks, journals, internets and annual reports. The analysis of data was done using numerical and percentage techniques and table were also used to text the response. The method used in testing the research questions is in the use of statistical method like percentage from the analysis, it revealed that there are major policies which the government and monetary authority must endeavour to maintain and apply appropriately. Useful recommendation are made based on the findings from the study that government and monetary authority should endeavour to maintain and apply these efficient tools. And when policy measures are well implemented, there will be great improvement in the economy of the country.

CHAPTER ONE

  • INTRODUCTION
    • BACKGROUND OF THE STUDY

The need for the monetary and fiscal policies had always been there, though not really recognized in the banking system and in the economy. The increase rate of money circulation in the economy, due to the rapid growth of commerce and industry has made monetary authorities (the central bank of Nigeria) increasingly interested in making an effort to have money supply and credit conditions controlled so as to maintain a relative economic stability. And so the central bank of Nigeria was empowered to carryout the monetary formulation and execution in consultation with the federal ministry of finance.

Also, the need to generate revenue for the increase of investment and the pattern of expenditure for the purpose of influencing economic activities glace room for the formulation of fiscal policy. The economy has also witnessed a lot of economic depression, especially the great depression of 1930. As they kept on having an unbalance budget or the budget adding to the cyclical fluctuation. There was the need for these economic ills to be corrected and the fiscal policy succeeded in connecting these ills of economy. The facts was further influences by that emergence of growth and stability concept.

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In other words, if any economy remains in equilibrium with resources only particularly employed, something must be done to find employment.

Therefore, to increase this level, employment could be done in two ways: it could be either directly tackling the problem by employing more workers or directly tackling it by offering inducement to produce or to increase instrument. Indeed, the monetary and fiscal policies direct the total depending on the economy. Their effectiveness as stabilization or efficient tools remains an unsettled issue among economics. They have been the efficient tools of economic stability.

According to John Orji in his book titled “Element of Banking” he listed measures to be applied in using fiscal policy to solve economic problem  or make the economy stable as thus:

  1. Fiscal policy and Recession; when aggregate demand for goods and services, The level of employment and prices are generally low, the economy is said to be faced with recession. In order to get the economy out of recession, the government can apply fiscal policy to solve the problem by taking the following objectives. Reduction in taxation, increase in Government expenditure, Grants to industries and Banks.
  2. Fiscal Policy and inflation: Inflationary pressure is experienced when the aggregate demand is higher than aggregate supply, the price level tend to rise there by making the banks to borrow. The resulting inflation can be controlled by fiscal policy by employing, the following methods: increase in taxation, reduction in Government expenditure, reduction of financial Grants to firms etc.
    • STATEMENT OF PROBLEMS
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There has been instability in the economic system arising from flow of money.

There has never been sufficient time require for their policy weapon to impact on such key economic variables, which is crucial important as an instrument of economic stabilization.

There has been where there is either excess or shortage which has often affected unwarranted unbalances or destabilization in the economy. Such instability or unbalance has never encouraged economic growth. In other words, monetary and fiscal policies in most cases, have been retarded which result in unbalance in the economy.

  • PURPOSE OF THE STUDY

In view of the background, the policies aimed at maintaining economic stability, therefore this work aims specially to achieve the following objectives:

  1. To examine the monetary and fiscal policies and ascertain how effective they have been in making poor conditions of the rural areas affairs.
  2. To know why despite the monetary and fiscal policies formulated for economic development, the rural areas are still under-developed and under-utilized for much needed economic transformation of the country.
  3. To ascertain whether rural dwellers are included in the various policies mapped out yearly by the government via central banks, commercial banks and other financial institutions.
  4. To determine why there should still be unemployment in the economy, despite the existence of monetary and fiscal policies.
  5. To ascertain why monetary and fiscal policies as an instrument of economic stabilization.
  6. To indemnity the country economic problems with a view to offer lasting solutions to them.
    • RESEARCH QUESTION

This research questions includes:

  1. Is monetary and fiscal policies really the efficient tools to economic stability?
  2. Do monetary and fiscal policies contribute in growth of economy of the country?
  3. Has there been unbalance in the economy due to monetary and fiscal policies being retarded.
  4. Does the absence of monetary and fiscal policies do any harm to the economy?
  5. Do monetary and fiscal policies contributes positively towards improving and developing of rural areas?

Research hypothesis

  1. HO: there has been instability in the economic system arising from flow of money and credit condition before the introduction and fiscal policies.
  2. HA: there has not been instability on the economic system arising from flow of money and credit condition before the introduction of monetary and fiscal policies.
  3. HO: there has been unbalance in the economy resulting from monetary and fiscal policies being retarded.
  4. HA: there has not been unbalance in the economy resulting from monetary and fiscal policies being retarded.
    • SIGNIFICANCE OF THE STUDY

The monetary and fiscal policies cannot be over emphasized in the management of the economy. This study is of great importance to the society. So it will be deliberating on their need for a stable economy.  Therefore, this study will help;

  1. The government for a better budget planning so that there won’t be any such cases like shortage or excess in the economy after making the budget.
  2. The financial researchers for better judgment or better decision making and implementation.
  3. To bring up the uneritable need to apply the tools and to apply it correctly in the control of the economic making supply and economic depreciations.
  4. To guide the central banks of Nigeria and the government on how to control the economy so as to avoid such cases as decrease of money in the circulization (deflation) instead it will keep a stable economy.
  5. To maintain stability in the external value of the currency using monetary policy.
  6. To Attain a high, rapid and sustainable economic growth.
  7. To maintain balance of payment Equilibrium in the economy.
    • SCOPE OF THE STUDY
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This research work is limited only to Nigeria economy. The limitation in the Nigeria economy is with reference to CBN-Awka.

Also the researcher went on extra mile to obtain information and statistics reasonable enough and for fiscal policies as efficient tool for economic growth and stability.

LIMITATION OF THE STUDY

In carrying out this project work, the research is faced with certain limitations among which are:

  1. TIME LIMIT: because of the short semester and tight schedule for lecturer free period and weekends.
  2. FINANCE LIMIT: Because of the economic situation of the country and many expenses which has been met, the researcher is faced with limited finance which is the reason why one cannot often and for because of the transport fare involved to obtain information required for the project but nevertheless, enough information or data where calculated.
  • DEFINITION OF OPERATIONAL TERM

MONETARY POLICY: There are as many definition of monetary policy as there are writers on the topic. however, for the purpose of this study a few definition will surface for consideration. According to Nwakpa P.N. he define monetary policy as a various ways which the federal government and the central bank seek to influence the supply of credit as well as their price in order to achieve a stated described economic goal. The desired goal include, to improve the rural area and maintain healthy economy. According to John Orjih in his book titled “Elements of Banking” Defined Monetary Policy as; Any conscious action undertaken by the monetary authorities to change the volume, quantity, availability, cost and direction of money and credit in a given economy. He also  went further to define it as the credit control measures adopted by central banks to control the supply of money as an instrument for achieving the objectives of general economic policy. According to Okpala C.M. in his book titled “Banking in Nigeria Issues and Concept” defined Monetary policy as : A deliberate efforts by the monetary authorities (the central bank) to control the money supply and credit contributions for the purpose of achieving certain broad economic objectives using the following instrument tools.

  1. Open Market Operation (OMO): this refers to the buying and selling of government securities in the Open market by the central banks of Nigeria. When prices rise, and there is the need to control them, the CBN sells securities to the public. These securities includes: treasury bliss government bonds, treasury certificates etc.
  2. Legal reserve Ration: This means the percentage of commercial banks deposits (from customers) that the central banks requires them to set aside either in an account with the central bank (cash ratio) or in approved securities that is liquid assets.
  3. Discount Rate / Rediscount rate / Bank rate: This is the rate at which the central bank lend money to commercial banks, discount house, and other financial institutions (rediscount rate).
  4. Liquidity Ratio; this is a method which compels the banks to spread / diversity their portfolio of liquid assets holding.
  5. Moral suasion: this is a credit control measure applied by the central banks of Nigeria which involves informal discussions with the official of commercial banks.
  6. Directives; this is a method applied by the central bank in giving instructions to the credit and banking policies that would be pursued by the financial sector for a given fiscal period.
  7. Fiscal policy: according to the oxford Advanced Dictionary, it defined fiscal policy as the creation of tax structure and the determination of the amount of tax revenue and the direction of government expenditure for the purpose of attaining a specific objectives such as: greater dependence on our own resources through development of the area.
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According to Okpala C.M in his book titled “Budgeting” he defined fiscal policy as the government’s conscious attempt to client the economic activities towards achieving growth and stability.

According to C.C.N. Asuzu (1995), he defined fiscal policy as that part of government policy concerning the raising of revenue through taxation and other means and deciding on the level and pattern of expenditure for the purpose of influencing economic activities.

These economic activities are directed towards the broad objectives of attaining economic growth and stability.

  1. Economic Growth: simply means a rise in the per-capita income of a given economy.

Economic stability: means a situation characterized by stability in the price level and full employment.

According to John Orjih (1996), He defined fiscal policy as a deliberate government policy which is designed to change the level of government expenditure or varying the level of taxation or both; for purposes of achieving some desired economic objectives, fiscal policy is implemented through changes in the budget.

  1. The budget: it can be defined as a financial statement of the sources (revenue) and uses (expenditure) of fund of the government which is prepared by the ministry of finance for discussion and approval.

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