Devaluation! Devaluation!! Devaluation!!!
How did it all start? The price of crude oil fell in the international market and Nigeria being an economy that relies solely on crude oil as its major source of revenue has to bear the brunt of the decrease in the price of its black gold by witnessing a sharp decline in its revenue. The excess crude account was as its all time low due to mismanagement by the fiscal authorities, they were not prudent in times of surplus & we needed money to run the economy and also we needed our external reserve to service our currency so as to boost its value.
The problem however started when there was no reserve to service our currency in the foreign exchange market, this will lead to d depreciation of the Naira(#) against the Dollar($) since the price of naira is being determined by the forces of the market, naira started depreciating at a galloping rate, imports rising, cost of production rising, our country in soup, where do we run to for help ?.
This was where the monetary authorities stepped in through the meeting held by the monetary policy committee of the CBN, the price of naira was determined exogenously by the monetary authorities. It was pegged at $1 to N165..... Oooh lala, there is hope at last, the price has been determined outside of the market, what a relief.
To ensure smooth running of the financial system, the rate of interest was also fixed at 13%. Everything looked bright again, there is hope. But alas, this was not to continue for long since the market forces is stronger than any monetary authorities, the fiscal unit started drawing down on our reserves, We had to pay for it by an increasing level of depreciation....... For the first time, naira rose to an all time highest rate of $1 to N194!!!!! ......... Trouble booting............
The fiscal authorities had to rise to the occassion, and this is where the real problem began.
How? Why? Austerity measures was introduced by the fiscal authorities so as to save the economy from falling like a sack of garri. Taxes was increased on luxurious goods and services consumed by the rich, this however will not affect them since they are the ones that still influences the policy makers. Just like the case of the person playing the piper also dictating the tune, so that one no concern us. How does this affect the common man like you and me?. Do we all know that according to the 2015 budget, Value Added Tax has been increased to 5%?. Someone will murmur wetin be my own. Yes, wetin be your own, but you have to bear it in mind that VAT is an indirect tax that you and I pay, I mean everyone irrespective of age, creed or tribal affiliation. And we pay VAT by dinning with the dreaded monster called inflation. Oooooooooh, i hear you say how?, VAT denotes an increase in the producers cost of production, and we all know who bears the final brunt of this, Of course it is you the consumer. You buy a lot of things everyday, so, you can't escape it. This is where we will all begin to suffer the negative effects of fall in price of crude oil.[color=#006600][/color]