Effects Of Micro-Economic Policies On The Financial Sector
(A Critical Appraisal)
Micro-economic policies play a pivotal role in shaping the dynamics of the financial sector, influencing various aspects such as market structure, competition, efficiency, and stability. Regulatory measures, including interest rate policies, reserve requirements, and capital adequacy ratios, directly impact the cost of capital, lending practices, and overall risk management within financial institutions. Additionally, fiscal policies, such as taxation and government spending, influence the level of investment, consumer behavior, and market liquidity, thereby affecting the performance and profitability of financial firms. Moreover, regulatory frameworks aimed at promoting transparency, investor protection, and fair competition foster trust and confidence in the financial system, fostering long-term stability and sustainable growth. Conversely, poorly designed or implemented policies can lead to distortions, market inefficiencies, and systemic risks, undermining the integrity and resilience of the financial sector. Therefore, the effectiveness and coherence of micro-economic policies are crucial for fostering a sound and dynamic financial environment conducive to economic development and prosperity.
TITLE PAGE
DEDICATION
ACKNOWLEDGEMENT
TABLE OF CONTENTS
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
1.2 STATEMENT OF THE PROBLEM
1.3 OBJECTIVE OF THE STUDY
1.4 SIGNIFICANCE OF THE STUDY
1.5 SCOPE AND LIMITATIONS
1.6 DEFINITION OF TERMS
CHAPTER TWO
LITERATURE REVIEW
2.1 WHAT IS MACRO- ECONOMIC?
2.2 MACRO- ECONOMIC PROBLEMS IN NIGERIA
2.3 APPRAISAL OF MACRO- ECONOMICS ACTIVITIES (BETWEEN 1995-1998)
2.4 VARIOUS MACROS –ECONOMICS TOOLS
2.5 EFFECT OF MACRO- ECONOMIC POLICIES IN NIGERIA
2.6 COMPONENTS OF THE NIGERIA FINANCIAL SECTORS.
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 THE DESIGN OF THE STUDY
3.2 POPULATION OF THE STUDY
3.3 SAMPLE AND SAMPLING TECHNIQUE
3.4 INSTRUMENT FOR DATA COLLECTIONS
3.5 VALIDITY OF THE INSTRUMENT
CHAPTER FOUR
4.0 DATA PRESENTATION AND ANALYSIS
CHAPTER FIVE
5.0 SUMMARY, RECOMMENDATION AND CONCLUSION
5.1 SUMMARY OF FINDING
5.2 RECOMMENDATIONS
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The Nigerian economy was propelled by the astronomical increase in petroleum prices and the subsequent increase in foreign exchange in flow in the 1970s sound uchendu (1994: 54) this new wealth resulted to a consumption pattern and taste, which altered aggregate demand in favor of imported goods, services and technology. In view of this strong demand for oil in the 1970s, and the expectation that it would remain so future earning were borrowed to support present consumption and unproductive investment in the 1980s.
At this time, economic performance weakened while the maturing external debt threatened the economy. Eventually, economic growth stagnated while the balance of payment deteriorated.
Against this, the government came out with numerous macro- economic policies as to arrest this in balance. The stabilization security was introduced in 1986 as a means of mapping excess liquidity. There after other macro-economic policies were introduced. Some of them are: structural adjustment programme (SAP) introduced between 1986 to 1998 with the objective of deregulating economic activities aimed at creating non-inflationary economic growth and balance of payment validity, retransfer of government according to commercial banks as contained in the 1997 budget deregulation of interest rate etc. these among others were designed to help in redressing the in balance in the Nigerian economy.
STATEMENT OF THE PROBLEM
This topic the effect of macro-economic policies on the Nigerian financial sector is targeted to the commercial banks that through there activities have direct effect on the Nigeria economy.
We recall that Nigeria has under-gone several monetary phases and different policies have been evolved to ensure it doesn’t get worse.
To what extent has the government been able to achieve macro- economic stability through the use of the various monetary instruments the statement of problem. All these macro- economic policies are designed to propel the Nigeria economy to stability, sustainable and self- reliant economy. Has the Nigeria economy attained the above stated objective?
Except in 1987, the overall balance of payment was in deficit from 1986 till 1993.
OBJECTIVES OF THE STUDY
The objective of this research shall be to examine among other issues the following policies:
1. The effectiveness of macro- economic policies in the Nigeria economy.althuogh SAP was introduced as policy instrument, but between 1986 -1993 there was deficit in the overall balance of payment.
2. The research would examine if there are factors, inhibiting the use of macro- economic policies as instruments towards redressing. The Nigeria economic. It was absolved that during the SAP era inflation rate. Fluctuated from 5.4, 10.2; 40.0 percents between 1986 and 1992 to an alarming rate of 57.2 percent in 1993.
3. The research will ascertain if there are any other macro- economic policies that could be infused into the existing monetary instrument.
4. Finally to make suggestion as regards how to com bat these identified effect of macro economic policies.
SIGNIFICANCE OF THE STUDY
After independence the government through the central bank of Nigeria has adopted several policies aimed at piloting the economic to sustainable and self – reliant economic. The CBN brief ( 1996: 1) looked at macro- economic policy as, a design of process by the which the agency responsible for the economy manipulates a set of instrument variable in order to achieve desired economic objective.
Readers from the large segment of the society especially the business community will find this work useful in mapping out business strategies by; examining and identifying the “effect of macro- economic policies in the Nigeria financial sector conclusion would be drawn and the recommendation made would be of immense benefit to executives directly involved in the finance of Nigeria. Members of the academic researching on “macro- economic policies or the effects on Nigeria” will find this work valuable. The average reader will also know what it entails.
As this study is expected to identify the problems in clouding the policies. It is also expected that the monetary authorities would appreciate and redress their position where necessary and show commitment to the full realization of this available plan.
SCOPE AND LIMITATION
Actually the scope of this study is limited to banking activities in Nigeria economy consequently because of the highly technical nature of the issue involved in this research the survey is confined to bank i.e. (commercial bank both in port-Harcourt and Enugu). Few surveys will be carried out with knowledgeable person that have been affected by these policies. These importers, exporters etc.
For the fact that this research was number some and enormous, a lot of set backs were encountered, such as keeping of vital information by the banking management. However of the fact finding would be limited to mouthy annual reports, bullion magazines published by central bank of Nigeria and current monetary circulars.
DEFINITION OF TERMS
For the avoidance of ambiguity and misconception of ideas, it is necessary to define some concept in the research.
Macro- economic policies: this is the design process by which the agency responsible for the conduct of economic activities, manipulate a set of instrument variable in order to achieve derived objective or goal.
STABILIZATION SECURITIES: this is the monthly instrument policy designed to mop (up) excess liquidity.
STRUCTURAL ADJUSTMENT PROGRAMME (SAP):
Ashikwe an economist and the publisher of “financial post defines SAP as a macro- economic policy designed to transform Nigeria into a strong industrial country that can stand. Its grand’s in the competitive capitalist market.
SAP can also be defined as an institutional policy intended to change the management of the Nigeria economy from pervasive governmental
intervention in the various markets towards greater reliance on market forces in the allocation of goods, services and financial resources.
Effects Of Micro-Economic Policies On The Financial Sector:
Microeconomic policies can have significant effects on the financial sector. Microeconomic policies refer to government interventions and regulations that target specific industries, markets, or economic agents at a granular level, as opposed to macroeconomic policies that focus on the overall health of the economy. Here are some of the key effects of microeconomic policies on the financial sector:
- Regulation and Supervision: Microeconomic policies often include regulations that govern the behavior of financial institutions. These regulations can impact the financial sector by setting rules for capital adequacy, risk management, consumer protection, and more. For example, the Basel III framework introduced stricter capital requirements for banks to enhance financial stability.
- Consumer Protection: Policies related to consumer protection can directly affect the financial sector. Regulations governing financial products, disclosure requirements, and fair lending practices aim to protect consumers from predatory practices and ensure transparency. These policies can influence the types of financial products offered and the way they are marketed.
- Interest Rate Controls: Governments may implement microeconomic policies that directly affect interest rates. For instance, central banks may set short-term interest rates to influence borrowing costs. These policies can impact the profitability of financial institutions, especially banks, as their net interest margins are affected.
- Credit Policies: Microeconomic policies can also impact the availability of credit. Government programs and regulations can encourage or discourage lending to certain sectors or types of borrowers. For example, targeted subsidies or guarantees for small businesses can influence banks’ lending decisions.
- Competition Policy: Antitrust and competition policies can influence the structure of the financial sector. Measures to promote competition may lead to the entry of new financial institutions, potentially increasing choice and lowering costs for consumers. Conversely, mergers and acquisitions may be restricted to prevent the concentration of market power.
- Taxation: Tax policies can have direct implications for the financial sector. Tax incentives for savings and investment can encourage participation in financial markets. On the other hand, changes in the taxation of financial transactions or capital gains can affect trading activity and investment decisions.
- Stability and Crisis Management: Microeconomic policies can also be designed to enhance financial stability and crisis management. Measures such as stress testing, resolution frameworks, and deposit insurance programs are examples of policies aimed at safeguarding the financial system from systemic risks.
- Fintech Regulation: With the rise of fintech companies, microeconomic policies have been adapted to address the challenges and opportunities they present. Regulation of peer-to-peer lending, digital payment systems, and cryptocurrencies, for instance, can have a profound impact on the financial sector’s landscape.
- Foreign Investment and Trade Policies: Policies related to foreign investment and trade can influence cross-border financial flows. Restrictions or incentives for foreign investment in domestic financial markets can affect the composition of assets held by financial institutions.
- Innovation and Technology Policies: Policies that promote innovation and technology adoption can shape the financial sector. For example, initiatives to promote blockchain technology or open banking can change the way financial services are delivered.
In summary, microeconomic policies play a crucial role in shaping the financial sector’s structure, behavior, and overall health. They can have direct and indirect effects on financial institutions, consumers, and the stability of the financial system. The specific impact of these policies can vary depending on the goals and implementation of the policies in question.