What are the effect or impact on excessive inflation on Nigeria economy

ABSTRACT Debt relief is the partial or total forgiveness of debt, or the slowing orstopping of debt growth, owed by individuals, corporations, or nations. Formost people, saving money with one low monthly program payment meetstheir debt relief needs. It is not the only solution, and it is important to keepin mind that during the life of your debt settlement program, you are notpaying your creditors. We are a leader in the debt settlement industry in providing a debt solutionthat has helped thousands of people. Since its founding, Debt Relief hassettled over one billion dollars of debt for our clients. This debt relief solution is for consumers that need one low monthly program payment toresolve their debts in as little as 24-48 months.Despite the debt forgiveness to the tune of $18 billion received by Nigeriafrom Paris club since year 2005 including the subsequent payment of $12 billion to upset the remaining debt, there is no evidence of acceleratingpace of growth and development of the country. It is therefore, instructiveto find out the direction and the extent of the effectiveness of the debt relief granted to Nigeria. This forms the objective of this study. The secondary data used for the investigation were processed using the ordinary leastsquare packages. The result of the OLS model showed that the debtoverhang problem of Nigeria has been alleviated by the debt relief package but the debt service relief did not positively influence the growth indicator.The results strongly support the need for tougher conditionality in futuredebt forgiveness initiative. Donor countries should monitor the allocationpattern of debt relief maintain What is Inflation . Inflation is a rise in the general price level and is reported in rates of change. Essentially what this means is that the value of your money is going down and it takes more money to buy things. Therefore a 4% inflation rate means that the price level for that given year has risen 4% from a certain measuring year (currently 1982 is used). The inflation rate is determined by finding the difference between price levels for the current year and previous given year. The answer is then divided by the given year and then multiplied by 100. To measure the price level, economists select a variety of goods and construct a price index such as the consumer price index (CPI). By using the CPI, which measures the price changes, the inflation rate can be calculated. This is done by dividing the CPI by the beginning price level and then multiplying the result by 100. Causes of Inflation There are several reasons as to why an economy can experience inflation. One explanation is the demand-pull theory, which states that all sectors in the economy try to buy more than the economy can produce. Shortages are then created and merchants lose business. To compensate, some merchants raise their prices. Others don't offer discounts or sales. In the end, the price level rises.

A second explanation involves the deficit of the federal government. If the Federal Reserve System expands the money supply to keep the interest rate down, the federal deficit can contribute to inflation. If the debt is not monetized, some borrowers will be crowded out if interest rates rise. This results in the federal deficit having more of an impact on output and employment than on the price level. A third reason involves the cost-push theory which states that labor groups cause inflation. If a strong union wins a large wage contract, it forces producers to raise their prices in order to compensate for the increase in salaries they have to pay. The fourth explanation is the wage-price spiral which states that no single group is to blame for inflation. Higher prices force workers to ask for higher wages. If they get their way, then producers try to recover with higher prices. Basically, if either side tries to increase its position with a larger price hike, the rate of inflation continues to rise. Finally, another reason for inflation is excessive monetary growth. When any extra money is created, it will increase some group's buying power. When this money is spent, it will cause a demand-pull effect that drives up prices. For inflation to continue, the money supply must grow faster than the real GDP. Effects of Inflation The most immediate effects of inflation are the decreased purchasing power of the dollar and its depreciation. Depreciation is especially hard on retired people with fixed incomes because their money buys a little less each month. Those not on fixed incomes are more able to cope because they can simply increase their fees. A second destablizling effect is that inflation can cause consumers and investors to changer their speeding habits. When inflation occurs, people tend to spend less meaning that factories have to lay off workers because of a decline in orders. A third destabilizing effect of inflation is that some people choose to speculate heavily in an attempt to take advantage of the higher price level. Because some of the purchases are high-risk investments, spending is diverted from the normal channels and some structural unemployment may take place. Finally, inflation alters the distribution of income. Lenders are generally hurt more than borrowers during long inflationary periods which means that loans made earlier are repaid later in inflated dollars.What is Inflation . Inflation is a rise in the general price level and is reported in rates of change. Essentially what this means is that the value of your money is going down and it takes more money to buy things. Therefore a 4% inflation rate means that the price level for that given year has risen 4% from a certain measuring year (currently 1982 is used). The inflation rate is determined by finding the difference between price levels for the current year and previous given year. The answer is then divided by the given year and then multiplied by 100. To measure the price level, economists select a variety of goods and construct a price index such as the consumer price index (CPI). By using the CPI, which measures the price changes, the inflation rate can be calculated. This is done by dividing the CPI by the beginning price level and then multiplying the result by 100. Causes of Inflation

There are several reasons as to why an economy can experience inflation. One explanation is the demand-pull theory, which states that all sectors in the economy try to buy more than the economy can produce. Shortages are then created and merchants lose business. To compensate, some merchants raise their prices. Others don't offer discounts or sales. In the end, the price level rises. A second explanation involves the deficit of the federal government. If the Federal Reserve System expands the money supply to keep the interest rate down, the federal deficit can contribute to inflation. If the debt is not monetized, some borrowers will be crowded out if interest rates rise. This results in the federal deficit having more of an impact on output and employment than on the price level. A third reason involves the cost-push theory which states that labor groups cause inflation. If a strong union wins a large wage contract, it forces producers to raise their prices in order to compensate for the increase in salaries they have to pay. The fourth explanation is the wage-price spiral which states that no single group is to blame for inflation. Higher prices force workers to ask for higher wages. If they get their way, then producers try to recover with higher prices. Basically, if either side tries to increase its position with a larger price hike, the rate of inflation continues to rise. Finally, another reason for inflation is excessive monetary growth. When any extra money is created, it will increase some group's buying power. When this money is spent, it will cause a demand-pull effect that drives up prices. For inflation to continue, the money supply must grow faster than the real GDP. Effects of Inflation The most immediate effects of inflation are the decreased purchasing power of the dollar and its depreciation. Depreciation is especially hard on retired people with fixed incomes because their money buys a little less each month. Those not on fixed incomes are more able to cope because they can simply increase their fees. A second destablizling effect is that inflation can cause consumers and investors to changer their speeding habits. When inflation occurs, people tend to spend less meaning that factories have to lay off workers because of a decline in orders. A third destabilizing effect of inflation is that some people choose to speculate heavily in an attempt to take advantage of the higher price level. Because some of the purchases are high-risk investments, spending is diverted from the normal channels and some structural unemployment may take place. Finally, inflation alters the distribution of income. Lenders are generally hurt more than borrowers during long inflationary periods which means that loans made earlier are repaid later in inflated dollars.What is Inflation . Inflation is a rise in the general price level and is reported in rates of change. Essentially what this means is that the value of your money is going down and it takes more money to buy things. Therefore a 4% inflation rate means that the price level for that given year has risen 4% from a certain measuring year (currently 1982 is used). The inflation rate is determined by finding the difference between price levels for the current year and previous given year. The answer is then divided by the given year and then multiplied by 100. To measure the price level, economists select a variety of goods and construct a price index such as the consumer price index (CPI). By

using the CPI, which measures the price changes, the inflation rate can be calculated. This is done by dividing the CPI by the beginning price level and then multiplying the result by 100. Causes of Inflation There are several reasons as to why an economy can experience inflation. One explanation is the demand-pull theory, which states that all sectors in the economy try to buy more than the economy can produce. Shortages are then created and merchants lose business. To compensate, some merchants raise their prices. Others don't offer discounts or sales. In the end, the price level rises. A second explanation involves the deficit of the federal government. If the Federal Reserve System expands the money supply to keep the interest rate down, the federal deficit can contribute to inflation. If the debt is not monetized, some borrowers will be crowded out if interest rates rise. This results in the federal deficit having more of an impact on output and employment than on the price level. A third reason involves the cost-push theory which states that labor groups cause inflation. If a strong union wins a large wage contract, it forces producers to raise their prices in order to compensate for the increase in salaries they have to pay. The fourth explanation is the wage-price spiral which states that no single group is to blame for inflation. Higher prices force workers to ask for higher wages. If they get their way, then producers try to recover with higher prices. Basically, if either side tries to increase its position with a larger price hike, the rate of inflation continues to rise. Finally, another reason for inflation is excessive monetary growth. When any extra money is created, it will increase some group's buying power. When this money is spent, it will cause a demand-pull effect that drives up prices. For inflation to continue, the money supply must grow faster than the real GDP. Effects of Inflation The most immediate effects of inflation are the decreased purchasing power of the dollar and its depreciation. Depreciation is especially hard on retired people with fixed incomes because their money buys a little less each month. Those not on fixed incomes are more able to cope because they can simply increase their fees. A second destablizling effect is that inflation can cause consumers and investors to changer their speeding habits. When inflation occurs, people tend to spend less meaning that factories have to lay off workers because of a decline in orders. A third destabilizing effect of inflation is that some people choose to speculate heavily in an attempt to take advantage of the higher price level. Because some of the purchases are high-risk investments, spending is diverted from the normal channels and some structural unemployment may take place. Finally, inflation alters the distribution of income. Lenders are generally hurt more than borrowers during long inflationary periods which means that loans made earlier are repaid later in inflated dollars.What is Inflation . Inflation is a rise in the general price level and is reported in rates of change. Essentially what this means is that the value of your money is going down and it takes more money to buy things.

Therefore a 4% inflation rate means that the price level for that given year has risen 4% from a certain measuring year (currently 1982 is used). The inflation rate is determined by finding the difference between price levels for the current year and previous given year. The answer is then divided by the given year and then multiplied by 100. To measure the price level, economists select a variety of goods and construct a price index such as the consumer price index (CPI). By using the CPI, which measures the price changes, the inflation rate can be calculated. This is done by dividing the CPI by the beginning price level and then multiplying the result by 100. Causes of Inflation There are several reasons as to why an economy can experience inflation. One explanation is the demand-pull theory, which states that all sectors in the economy try to buy more than the economy can produce. Shortages are then created and merchants lose business. To compensate, some merchants raise their prices. Others don't offer discounts or sales. In the end, the price level rises. A second explanation involves the deficit of the federal government. If the Federal Reserve System expands the money supply to keep the interest rate down, the federal deficit can contribute to inflation. If the debt is not monetized, some borrowers will be crowded out if interest rates rise. This results in the federal deficit having more of an impact on output and employment than on the price level. A third reason involves the cost-push theory which states that labor groups cause inflation. If a strong union wins a large wage contract, it forces producers to raise their prices in order to compensate for the increase in salaries they have to pay. The fourth explanation is the wage-price spiral which states that no single group is to blame for inflation. Higher prices force workers to ask for higher wages. If they get their way, then producers try to recover with higher prices. Basically, if either side tries to increase its position with a larger price hike, the rate of inflation continues to rise. Finally, another reason for inflation is excessive monetary growth. When any extra money is created, it will increase some group's buying power. When this money is spent, it will cause a demand-pull effect that drives up prices. For inflation to continue, the money supply must grow faster than the real GDP. Effects of Inflation The most immediate effects of inflation are the decreased purchasing power of the dollar and its depreciation. Depreciation is especially hard on retired people with fixed incomes because their money buys a little less each month. Those not on fixed incomes are more able to cope because they can simply increase their fees. A second destablizling effect is that inflation can cause consumers and investors to changer their speeding habits. When inflation occurs, people tend to spend less meaning that factories have to lay off workers because of a decline in orders. A third destabilizing effect of inflation is that some people choose to speculate heavily in an attempt to take advantage of the higher price level. Because some of the purchases are high-risk investments, spending is diverted from the normal channels and some structural unemployment may take place. Finally, inflation alters the distribution of income. Lenders are generally hurt more than borrowers

during long inflationary periods which means that loans made earlier are repaid later in inflated dollars.What is Inflation . Inflation is a rise in the general price level and is reported in rates of change. Essentially what this means is that the value of your money is going down and it takes more money to buy things. Therefore a 4% inflation rate means that the price level for that given year has risen 4% from a certain measuring year (currently 1982 is used). The inflation rate is determined by finding the difference between price levels for the current year and previous given year. The answer is then divided by the given year and then multiplied by 100. To measure the price level, economists select a variety of goods and construct a price index such as the consumer price index (CPI). By using the CPI, which measures the price changes, the inflation rate can be calculated. This is done by dividing the CPI by the beginning price level and then multiplying the result by 100. Causes of Inflation There are several reasons as to why an economy can experience inflation. One explanation is the demand-pull theory, which states that all sectors in the economy try to buy more than the economy can produce. Shortages are then created and merchants lose business. To compensate, some merchants raise their prices. Others don't offer discounts or sales. In the end, the price level rises. A second explanation involves the deficit of the federal government. If the Federal Reserve System expands the money supply to keep the interest rate down, the federal deficit can contribute to inflation. If the debt is not monetized, some borrowers will be crowded out if interest rates rise. This results in the federal deficit having more of an impact on output and employment than on the price level. A third reason involves the cost-push theory which states that labor groups cause inflation. If a strong union wins a large wage contract, it forces producers to raise their prices in order to compensate for the increase in salaries they have to pay. The fourth explanation is the wage-price spiral which states that no single group is to blame for inflation. Higher prices force workers to ask for higher wages. If they get their way, then producers try to recover with higher prices. Basically, if either side tries to increase its position with a larger price hike, the rate of inflation continues to rise. Finally, another reason for inflation is excessive monetary growth. When any extra money is created, it will increase some group's buying power. When this money is spent, it will cause a demand-pull effect that drives up prices. For inflation to continue, the money supply must grow faster than the real GDP. Effects of Inflation The most immediate effects of inflation are the decreased purchasing power of the dollar and its depreciation. Depreciation is especially hard on retired people with fixed incomes because their money buys a little less each month. Those not on fixed incomes are more able to cope because they can simply increase their fees. A second destablizling effect is that inflation can cause consumers and investors to changer their speeding habits. When inflation occurs, people tend to

spend less meaning that factories have to lay off workers because of a decline in orders. A third destabilizing effect of inflation is that some people choose to speculate heavily in an attempt to take advantage of the higher price level. Because some of the purchases are high-risk investments, spending is diverted from the normal channels and some structural unemployment may take place. Finally, inflation alters the distribution of income. Lenders are generally hurt more than borrowers during long inflationary periods which means that loans made earlier are repaid later in inflated dollars.

DEFICIT FINANCING AND ITS IMPLICATION ON PRIVATE SECTOR INVESTMENT: THE NIGERIAN EXPERIENCE
ABSTRACT
Deficit financing is a recurrent decimal in Nigerian economy. Since independence, over 90% of Nigerians budgets are in deficit. Deficit financing seems to present a positive inflationary impact and a negative investment impact on developing economics particularly Nigeria. Usually when there is deficit, government fined ways of financing the deficit through borrowing from commercial banks or from non-banking public and through the issue of short-term bonds and monetary instruments. Prolong deficit financing have an overall negative impact on the economy by crowding out private investment. This paper examines the impact of government expenditures on private investment and also how the financing of budget deficit have not only affected the performance of private investment but also how it crowds out private investment in Nigeria. Secondary data from CBN statistical bulletin Bureau of statistics bulletin were used Econometric models were used in calculating the relative impact of deficit financing on private investment in Nigeria. The findings revealed a negative relationship between deficit financing and investment in the period under review i.e deficit financing in Nigeria crowds out private investment. The paper recommends that government should redirect it fiscal policy that would favor the private investor by discouraging high government expenditure and maintaining low fiscal deficit. Also, to avoid crowding out effect, it is recommended that deficit be financed through the capital market.

INTODUCTION
Deficit financing seems to present a negative impact on investment on developing economies especially Nigeria. When there is a budget deficit, government finds ways of financing the deficit through borrowing from commercial banks or from non-banking public and through the issue of short term bonds and monetary instrument. The use of these forms of deficit financing for the
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pursuit of fiscal policies often leads to crowding out of private investment, inflation as well as future debt crisis. The economic fundamental of fiscal policy is to affect a countercyclical policy so that booms and depressions during the course of business cycles are offset (Collins 1991). Thus fiscal policy is essentially used in fine-tuning the economy, this is why Keynes (1930) advocated deficit financing, (an injection into the economy to stimulate aggregate demand via multiplier effect) to

effect a transition from mass unemployment to near full employment. Thus, excessive and prolong deficit financing through the creation of high powered money may negate the attainment of macro - economic stability, which may in turn affect the level of desired investment in an economy and thereby stripe growth. Major determinant that is mostly directly affected by macro - economic policy is investment, both public and private (Word Bank 1993) such macro-economic policies involved the deliberate manipulation of policy instruments, such as monetary policy, government fiscal operations, exchange rate and trade policies, pricing and environmental policies for the purpose of achieving broad macro - economic of relative price stability, high level of employment, economic growth, equitable distribution of the national income and balance of payment equilibrium. These are macro - economic indicators upon which investors confidence, expectation and decisions on whether to invest or not are based. Macro economic variables could, therefore, be regarded as the economic fundamentals or preconditions that must be fulfilled without which investment cannot take place. Deficit usually occurs as a result of government inability to match the fax revenue and expenditure. The deficit is financed either through borrowings (domestically or foreign) or use of foreign reserve to settle the deficit. By borrowing it means the government has to agree on the terms payments which usually are attached with strange regulations. Hence, this will perpetrate the deficit as more money will be spent by government on servicing the debt which creates more expenditure and deficit. Persistence of this many result to high and variable inflation, debt crisis, with crowding out of investment and growth and macro - economic imbalance in general. High extension debt stock and debt burden have also been shown to have a dampening effect on investment mainly through the debt overhang effect, the crowding out effect and credit rationing. The debt overhang effect refers to a situation in which a high debt burden discourages investment by the private sector since the new accumulated debt stock as a tax on future income and production. The crowding out effect on the other hand, arises from the consideration that resources which called have been used for investment are often deviated to service foreign debt. Credit rationing refers to situation in which a highly indebted country is likely to face credit constraint in international capital market and this would lead to reduction investment.
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MAIN OBJECTIVE The focus of this study, therefore, is to examine the efficacy of the fiscal policies and the impact on the countrys investment profile. This is with a view to using the benefits of hindsight to guide against pitfalls of the past in future, bearing in mind that investors confidence and expectation play significant roles in the decision to invest. SPECIFIC OBJECTIVES _ To evaluate how the financing of budget deficit has affected the performance of private investment in Nigeria. _ To examine the impact of government expenditures on private investment. _ To formulate econometric models and use it to calculate the relative impact of fiscal policy on private investment in Nigeria during the period under study. _ To make policy recommendation.

LITERATURE REVIEW

Development models of public expenditure which primarily is the works of Musgrave (1974) and Rustow (1971) anchors on the fact that the countries of the world must pass through different stages before they could develop, and that these different stages requires varied proportion of Government spending to total investment in the economy will be large since most of her activities centre on capital formation bordering on roads, housing, telephone, education, health care, among others in preparation for takeoff in to the middle stage. Many studies have been conducted on indirect effects of public deficits on private consumption and investment.
Komain (2007) examine the association between government expenditures and economic growth in Thailand by employing the Granger causality test, the result revealed that government expenditure and economic growth are not co-integrated. Furthermore, the result indicated a unidirectional relationship, as causality runs from government expenditures to growth. Owoye,et.el (2007) investigated the relationships between government expenditure and economic growth for a group of 30 OECD countries during the period 1970-2005. The regression results showed the existence of a long-run relationship between government expenditure and economic growth. In addition they also observed a unidirectional causality from government expenditure to growth for 16 out of the countries, thus supporting the Keynesian hypothesis. However, causality runs from economic growth to government expenditure in 10 out of the countries, confirming the Wagners law. Finally he found that the existence of feedback relationship between government expenditure and economic growth o0f four countries. Arabian Journal of Business and Management Review (OMAN Chapter) Vol. 1, No.9; April 2012 48 Cooray (2009) posited that increase in government expenditure contributes positively to economic growth. Abdullah, (2000) explained that increased public expenditure leads to high economic growth through physical infrastructures. Gregornu et.el (2007) in their work the impact of government expenditure on growth discovered that countries with large government expenditure tend to experience higher growth. Liu,etel (2008) examined the casual relationship between GDP and public expenditure for the US data during the period 1947-2002. The causality results revealed that total government expenditure causes growth of GDP. ts indicated that public expenditure raises the US economic growth. They concluded that judging from the causality test Keynesian hypothesis exerts more influence than the Wagners law. Erkin,(1988) examined the relationship between government expenditure and economic growth, by proposing a new frame work for New Zealand. The empirical results showed that higher government expenditure does not hurt consumption, but instead raises private investment that in turn accelerates economic growth. Peters, (2003) studying sweeten examine the effects of government expenditure on economic growth during 1960-2001 period. The research also show positive relationship between two variables

Akpokodje (1998) using a time series data in order to avoid potentially spurious results emanating from non-stationarity of the data series. He tried to estimate long run relationship using standard ordinary least squares (OLS) techniques. The long run regression results indicated that a fiscal policy weakened by fiscal deficit has a strong and significant adverse impact on private investment in the long run. The result indicates that a percentage increase in fiscal deficit is capable of contracting private investment by as much as 61 percentage. This negative impact confirms the crowding out effect of governments fiscal deficit programme on private investment in Nigeria. Akpokodje (1988) also observed that Governments monetary policy which insured credit to the

private sector has a strong positive and significant impact on private investment. He found out that, in the long run, sectoral allocation of funds to the private sector is capable of inducing private investment. This implies that increase allocation of funds to the government to finance its expansionary fiscal policy programme at the expense of the private sector adversely affects investment in the private sector significantly. According to Bamidele and Englama(1995) deficit financing is a veritable tool in macroeconomic management provided it is efficiently financed and productivity utilized on projects and programmes that could be self sustaining. However, excessive and prolong deficit
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financing through the creation of high powered money negates the attainment of macroeconomic stability, which may in turn, curtail the level of desired investment in an economy and thereby stifle growth. The World Bank (1996) cited studies by Fisher (1993) to demonstrate that the fastest growing countries in the world are those that maintain low inflation, low and manageable overall deficits, minimal price distortions stable exchange rates, strong efficient and open economies with large trade shores, in contrast with those that exhibit long-run inflation rate in excess of 30 percent. The report goes further to say that low growth rates and inflation rate are correlated with large overall budget deficit in parts because the financing was done mainly with Central Bank borrowings, as was the case in Nigeria (world Bank 1996). The same scenario has been observed among HPAE of South East Asia whose economies has been remarkably successful in creating and maintaining macroeconomic stability through manageable budget deficits, low inflation, maintenance of real effective exchange rate and keeping external debt under control which in turn, encourage private sector savings, investments, exports and growth. Blejar and Khan (1984) conducted a study in CoteDivoire, Thaialand and Argentina. Their findings revealed that public deficit have a negative effect on private investment in all the countries mentioned. However, the effect is stronger in Thailand but weak in cotedIvore for Argentina, the study also found that deficit financing have a strong negative effect. And that public expenditure or consumption in the above countries crowds out private investment. The conclusion then is that budget deficit and government expenditure tend to crowd out private investment through domestic market in Argentina, cotedIvore and Thailand. Rama (1993) and solamano (1993) observed that public deficit could have indirect effect on private investment it real interest rates rise in response to higher domestic debt financing. Although, theories predict that real interest rate will have an ambiguous effects on private sector. Hence the study will examine the implication of deficit financing in Nigeria over given period of time (Ten years).

METHODOLOGY
The method used is the application of the regression analysis to evaluate the relationship between deficit financing and private sector investment. The basic procedure is this method includes models specification, estimation and evaluation and interpretation of the result. The data are secondary and were collected from CBN,World Bank, Bureau of Statistics publications for the period under study. The model was estimated using the ordinary list square (OSL) technique and the estimate were obtained using econometric soft ware package system.

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The general nature of the model was derived within the context of the theoretical link between investment and fiscal policy noted in literature. We formulate a regression model to assess the effect of deficit financing on private investment. The equation used to estimate the relationship between deficit financing and private investment take the following forms. Consequent upon the foregoing argument, the HIPC initiative introducedsome guiding principles regarding a countrys eligibility for debt relief. To be considered for HIPC initiative assistance, a country must face anunsustainable debt burden, beyond traditionally available debtrelief mechanisms and establish a track record of reform and sound policiesthrough IMF and IDA supported programmes. In the late 1999, the HIPCinitiative was expanded in order to provide deeper and more rapid debtrelief to a larger number of countries. The enhanced HIPC initiative (HIPCII) integrated debt relief plans into a comprehensive poverty reductionstrategy requiring Poverty Reduction Strategy Papers (PRSP) on broad- based participatory process as a necessary condition to qualify for debtrelief. With this approach, the global donor community for the first timetook governance structures in the debtor countries (at least implicitly) intoaccount. Furthermore, the thresholds for sustainable debt levels wereredefined and lowered to a debt-perexport ratio of 150% and debt-to-revenue ratio of 250%. The eligibility of a country is proved in a stagedprocess. If a country is deemed eligible, the debt relief is delivered at the so-called completion point. During the period of the initial decision point andthe completion point, the progress of the country with respect toinstitutional reforms and structural adjustments is under observation andsupported by the IMF and the World Bank. In practice, the time span between HIPC II and the completion point is rather large. Some countriesare still waiting to reach the completion point.Sequel to the approval of a 2 years policies support instruments thatmonitored Nigerias economic reforms drive, Paris club agreed to write off 60% of the $30.85 billion owed to its club members. The deal was finally signed in July 2005. Thereafter, the country was able to offset theremaining 40% debt owed to Paris club. By March 2006, Nigeria owednothing to Paris club. This debt relief eventually saved the country from the yearly $2.3 billion debt service burden. It was however proposed that thisamount will then be available to be ploughed back and channeled to thoseareas that concern wealth creation, employment generation, agriculture,health, education, water supply, power generation and road construction.The significant debt relief as a matter of fact should help the countrys goalof reducing poverty, accelerating the pace of growth and development andprovide some boost for the ongoing reforms and millennium developmentgoals. One would expect that by now, 4 years after debt forgiveness toNigeria, the country should be on the path of economic recovery

A good and encouraging record trickled from the National Bureau of Statistics (NBC) that inflation rate receded to 9.4 per cent in July 2011, the lowest so far in three years. This is a significant improvement on persistent surging inflation that compelled the Central Bank of Nigeria (CBN) to aggressively tighten monetary policy. As of June 2011, the inflation rate stood at 10.2 per cent and this made the Sanusis CBN to raise the interest rate to 8.75 per cent. There is no doubt that the monetary policy of restraining and mopping up liquidity at the monetary base aided to slow down the rising inflation. The governor of the Central Bank of Nigeria, Sanusi Lamido had earlier promised to hold down inflation rate at less than 10 per cent, but for a while, it appears futile. Therefore, the apex bank of the land, is getting into muscular mood by increasing the interest rate many times to rein in the run away inflationary trends. Many observers of the Nigerian economy and market including investors were little skeptical about the usage of the aggressive tightening of the monetary policy to achieve the targeted goal. Financial writer at Thisday, Obinna Chima, observed that, The CBN had always expressed disdain for double-digits inflation rate in the country. This has seen the apex banks Monetary Policy Committee (MPC), adjusting various monetary policy instruments to achieve that ambition. The MPC which has operational independence in setting of interest rates in the country, had increased the benchmark interest rate the Monetary Policy Rate (MPR) four times since this year. The benchmark interest was raised from 6.5 per cent in January 2011, to 7.5 per cent in March, 8 per cent in May 2011 and to 8.75 per cent at the July 2011 meeting. Other monetary policy tools such as Cash Reserve Requirements (CRR) had also been reviewed upward. In reality, the issue of taming inflation in Nigeria must go beyond monetary policy but should involves the presidencys fiscal policy to help in the struggle to control inflation. The CBN should be probably elated with the recent development as inflation now stood below 10 per cent but the struggle is not yet over. The increase in interest rate to dry up the market excessive liquidity in order to achieve the desired goal of restraining inflation, may have a reverse effect at some point. As the interest rate increases, it will dampened economic growth by making the availability of credits and loans to tighten. The scenario may once again usher in credit crunch and the financial flow of liquidity in the capital market. This is not the result that CBN is trying to achieve, that is why a comprehensive outlook is continuously needed to wrestle down inflationary trends. The economy is cruising at 7.9 - 8 per cent and that is phenomenal by any standard.

The growth must be jealously protected from the rising inflation that can quickly dent the economic growth and reverse the trend. The injections of surplus money into the circulation by the bailing out of the failed banks, have in the past, contributed to inflation. The continuous and excessive borrowing by Nigerian government by selling of bonds must be done in way that too much money will not overheat the economy. Nothing is wrong with a country selling bonds and T-bills to investors but the raised funds must be diligently funnelled into the economy by way of investments. Another method that could be used to checkmate inflation, is for Nigeria to base its economic policies within its resurces. By this, a planned budget must be sensible and it must be successfully implemented. When a government dabbles into excessive spending that will increase its current expenditure and in the long run have untold consequences, the ramifications may come in the retarding of the economic activities and the surging of inflation rate due to excessive liquidity in the market. When the Nigerian economy is structured in a manner, that it depends on its means, there will be no aggressive need to raise the interest rate to combat inflation. When the interest rate was raised to 8.75 per cent at end of CBNs Monetary Policy Committee (MPC) session, it issued a statement that, The Committee observed that the inflation outlook appears uncertain, owing to the expected implementation of the new national minimum wage policy and the imminent deregulation of petroleum prices. Significant injection of liquidity from FAAC in the third quarter coupled with the impact of AMCON recapitalising intervened banks to the tune of N1.6 trillion, will both add to inflationary pressures. That is supposedly the case but it is not the whole story; the excessive government spending and borrowing played a role in the state of inflation. Investment in this case means to put money and resources on things that will enable the creation of wealth possible. Investments should go into the provision of infrastructures and social amenities that are needed by the citizens and capitalist for further creation of wealth and upliftment of the well-being of the society. The Nigerian government should do its best possible to provide electricity, good roads and security. The security in this case becomes imperative for the protection of life and property, which is the most important function of a given government. But there are also coming attractions to the economy according Samir Gadio, an emerging markets strategist at the Standard Bank Group Limited, that makes outlook on inflation uncertain. Those coming attractions include the doubling of the monthly minimum wage to 18,000 naira ($116) and to deregulate fuel prices, the Central Bank Governor Lamido Sanusi said recently. Core inflation, which excludes food, will probably accelerate in the second half of the year. These activities have the propensity to increase inflation. Nigeria must look into the cutting down of importation of food commodities,

especially rice that can be grown in Nigeria. The less reliance on importation, less spending and less borrowing can bode well for a sound economic standing devoid of higher inflation.