Executive Summary
Nigeria’s macroeconomic environment over the past two decades has been characterised by persistent volatility in inflation, interest rates, and exchange rates. Inflation has exceeded double digits for over a decade, while the naira has depreciated sharply and faced pressures in the official and parallel markets. Interest rates, particularly lending rates, have remained prohibitively high, hindering business access to finance. The instability of these macroeconomic variables has hampered growth, deterred investment, and increased economic uncertainty, leading the economy to grow far below its potential.
Therefore, the study examined the thresholds in macroeconomic conditions that can sustain long-term economic growth. Using threshold regression methods, the study found that for economic growth to become sustainable over the short-to-long term, inflation must be targeted at single digits, approximately 9% or below, exchange rate depreciation per year should be targeted at approximately 2.4% or below, while the monetary policy rate should be targeted at 16.5% or less, based on the macroeconomic conditions of the country. Below this target or at the target number, economic growth will become sustainable, providing an impetus for the Nigerian economy to grow at double-digit rates and achieve sustainable economic development. Above these targets, growth becomes too weak to make a meaningful impact on the economy. Achieving these targets will bring greater stability to the supply-side factors affecting productivity and economic output, while stabilising demand-side conditions in the Nigerian economy. Without reaching these targets, the effectiveness of monetary and fiscal policies to achieve demand-side and supply-side macroeconomic constraints remains limited.
