An overview of the effects of monetary policy in Nigeria on GDP and inflation, from 1961 to the present day.

% annual growth rate:

  M2 Nominal GDP
1961-2020 23.24% 21.35%
1961-1970 14.42% 17.61%
1971-1980 33.16% 19.58%
1981-1990 15.3% 19.76%
1991-2000 34.40% 36.36%
2001-2010 28.99% 31.64%
2011-2020 13.19% 10.82%

Sources: M3 from OECD database and nominal GDP from IMF database, as at May 2019.

The medium-term relationship between money and nominal GDP growth in Nigeria, 1961-2022

Five-year moving averages of annual % changes, with 1963 being the start of the first five-year period

Comment on monetary trends in Nigeria

After gaining independence from the UK in 1960, Nigeria experienced very high inflation during the three-year civil war (1967 - 1970), with quite high rates of money growth, as seigniorage became the main source of income to pay for the war. Nigeria's economy is highly dependent on oil exports and thus international oil prices and the exchange rate of currency against the US dollar have a significant impact on the economy. The oil prices boom in the 1970s resulted in very high economic growth in the country, followed by economic stagnation and contraction in the late 1970s and early 1980s. As shown in the graph above, two major episodes of monetary instability resulted in periods of high inflation and economic instability in Nigeria. They took place in the early/mid 1970s, and the late 1980s. In both episodes, rapid and unsustainable broad money growth was followed only few years later by stagnation and contraction of the economy, displaying the patterns of a typical boom and bust economic cycle.

In the 2000s the central bank was granted greater autonomy in the running of monetary policy, which was focused on maintaining the stability of the exchange rate within the West African monetary zone exchange rate system, and thus of ultimately bringing inflation under control. Since 2010 money growth has stabilised at an average annual growth rate of approximately 10% and the country also saw less fluctuation in the inflation rate and economic growth until 2016, when a notable fall in M2 and a contraction in GDP took place. A recovery in both broad money and GDP growth, however, took place in 2017.