Analysts have stressed the need for monetary policy measures in the country to always complement fiscal policies in order to stimulate growth in Nigeria.
A report by the Financial Derivatives Company Limited, noted that whereas Nigeria cannot influence the direction of oil prices in anyway, the government can influence the severity of the impact of lower oil prices on the economy.
It pointed out that several countries had to adopt flexible exchange rate system to dampen the impact of oil price shocks, saying that Nigeria needs to adopt an exchange rate policy that is in consonance with current market dynamics.
In its opinion, there are two options available to the government: to either do nothing and allow economic gangrene to set in, or adopt a deficit budget plan that must be implemented immediately.
It pointed out that the 2016 appropriation bill was based on the premise of a deficit funding.
“While this is a smart move, timing is of essence. The fracas over the budget numbers has stalled the passage of the fiscal plan which will spill over to the implementation of key projects that are expected to stimulate economic recovery.
“While Nigeria is being affected by the current oil price level, and will likely experience some further economic challenges in the short term, the country now has the opportunity to create a stronger position against this oil price shock and those to come in the future.
“Oil prices are on the increase, having reached $40.5pb. Yet, they remain 65.2 per cent lower their $115pb peak in 2014. While economists bemoan the lower prices, consumers have grown increasingly excited with the expectation that this would translate into lower transportation costs, an expenditure that occupies a significant position on their disposable incomes.
“Rather, Nigerian pump prices are likely to remain the same, if not increase, due to the costs and risks associated with freight, subsidy removal, and the impacts of supply-demand dynamics, competition and forex volatility,” it added.