A former statistician-general of the Federation and Chief Executive Officer at the National Bureau of Statistics (NBS), Dr Yemi Kale, has estimated a reduction in Q1 2023 nominal Gross Domestic Product (GDP) by between
N10 and N15 trillion due to cash crunch.
Kale, who is now a chief economist at KPMG, took to his Twitter handle at @sgyemikale on Tuesday to offer his prognosis on the economy given the current challenges in sourcing fir cash in the first quarter of the year.
Read him: “I am estimating a reduction in Q1 2023 nominal GDP by between N10-15 trillion due to challenges sourcing cash in Q1 2023.
“This is because about 40% of Nigeria’s N198tn GDP in 2022 is informal of which about 90% is cash based. Further 30% of formal sector GDP is cash based. This means N106.9tn of total GDP is cash based.
“Of the 46 economic activities, agriculture, some manufacturing activities (especially food & beverage, textiles, apparels), trade, arts entertainment & recreation, accommodation & food services, road and water transport and other servicesexpected to be the most affected.
“There is nothing new or wrong about currency redesign or cashless policy if done for the right reasons & at the right time. But every policy will have pros & cons & will benefit some but not others. There is no policy that won’t affect someone negatively. Or that won’t have costs.
“The idea is to do a cost benefit analysis looking at the overall impact of any policy & how and when it is to be implemented, across the economy & not just in one or a few areas and deciding if overall, the benefits outweigh costs. If yes then the costs are acceptable.
“Then a policy maker can or should introduce palliatives to make the costs bearable to those that will be negatively affected by its implementation.
“If result of analysis is the implementation of the policy & it’s implementation will be more detrimental to the entire system than beneficial even if it benefits a particular area or sector then it clearly isn’t a good idea to go ahead.
“Inflation though might slow down not because of an increase in output of goods & services above available cash to spend but because of lack of cash to chase more of less same amount of goods. The CPI is about 50% food of which several are perishable in the absence of storage.
“Assuming there is a decline in inflation rate which I anticipate (though marginal) when @NBS_Nigeria publishes their inflation report, we can then compare if the gains in inflation in Q1 2023 outweighs the expected decline in GDP &possibly other macro & socio economic variables.
“Recall employment is also tied to GDP growth- a slow down in growth will have a negative impact on employment. On the other hand both a reduction in inflation & growth in GDP can improve poverty rates. So it will be interesting to see which dominates re overall economic wellbeing.”
