The Central Bank of Nigeria (CBN) has disclosed a remarkable 51% year-on-year (YoY) increase in Nigeria’s Broad Money Supply (M2), which surged to ₦108.96 trillion in November 2024. This growth, compared to ₦72.03 trillion in November 2023, is primarily driven by escalating domestic borrowing by the Federal Government.
Sustained Growth with Temporary Setbacks
Broad Money Supply, which encapsulates total liquidity in the economy—including cash, demand deposits, and savings—showed consistent expansion throughout most of 2024. However, after experiencing a temporary decline of 1.5% in October to ₦107.7 trillion, the figure rebounded in November with a 1.2% month-on-month increase.
Drivers of Liquidity Expansion
The significant growth in M2 reflects broad-based increases across its components:
- Quasi Money: Representing savings and time deposits, this segment saw a modest 1.96% YoY rise, reaching ₦72.7 trillion in November 2024.
- Demand Deposits: These deposits surged by 34.4% to ₦31.6 trillion, up from ₦23.2 trillion in the previous year.
- Currency in Circulation: The amount of currency outside banks recorded a strong 50.9% YoY increase, totaling ₦4.65 trillion.
- Narrow Money (M1): Comprising cash and demand deposits, M1 expanded by 38% YoY, reaching ₦36.3 trillion.
Rising Credit to Public and Private Sectors
The CBN’s data highlights robust growth in credit allocation to both the public and private sectors:
- Public Sector Credit: Loans to the government increased by 54% YoY, reaching ₦39.6 trillion in November 2024.
- Private Sector Credit: Lending to businesses and individuals grew by 27% YoY, totaling ₦75.96 trillion.
The combined figures pushed net domestic credit to an unprecedented ₦115.6 trillion in November 2024, a significant 91% YoY jump from ₦60.5 trillion in 2023.
Economic Implications and Policy Recommendations
The surge in money supply underscores the Federal Government’s growing reliance on domestic borrowing to bridge fiscal deficits. While increased liquidity has the potential to stimulate economic activities, it also poses risks of heightened inflation, particularly in a challenging fiscal environment.
Economic experts advocate for a balanced approach to address these challenges. They recommend collaborative efforts between fiscal and monetary authorities to mitigate inflationary pressures while fostering sustainable economic growth. Addressing structural fiscal issues will be pivotal in shaping Nigeria’s economic trajectory amidst rising liquidity and credit expansion.
As domestic borrowing continues to escalate, ensuring prudent management of the nation’s fiscal framework will be critical to maintaining economic stability and promoting long-term growth.
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