AN ANALYSIS ON THE IMPACT OF MONETARY INSTRUMENTS ON EDUCATIONAL DEVELOPMENT IN NIGERIA FROM 2015-2020

CHAPTER ONE

INTRODUCTION

1.1 Background to the study

The Central Bank of Nigeria began operation in 1959 and since then the apex bank has continuously discharged its roles as enshrined in the Act establishing it. The major role of the Bank is to effectively control the money stock in the circulation in order to ensure price stability for advancement of economic development. This function encompasses the use of monetary policy mechanism towards reaching the specified macroeconomic objective including rapid economic progress, full employment, stability of price and external balance. Over the years, especially in the last decade, the two later objectives occupied the forefront of monetary policy objectives of the Bank as the primary goals. The assumption that exchange rate policy and inflation targeting are crucial instruments for attaining macroeconomic stability has made the two objectives major forces in the monetary policy calculations in the recent past (Ajayi, 1999).

Monetary policy has been described as the deployment of various monetary tools by the monetary authorities with the intention of regulating the supply, volume and cost of money in the circulation in order to achieve the expected economic objectives. The attainment of sustainable development, full employment, balance of payment equilibrium and price stability remains the primary monetary policy objective in many countries as opined in Folawewo and Osinubi (2006).

Since 1980s, evidence abounds in Nigeria that considerable level of relationship exists between the Nigerian stock of money and economic progress. Variation in the stock of money has over the years been the main policy measure employed by the monetary authorities to regulate the Nigerian economy. Nigerian government made drastic efforts to mitigate the consequences of the fall in the oil price in 1981 and deficit balance of payment (BOP) witnessed during that critical period which prompted the employment of stabilization measure alternating from monetary to fiscal policy. Ojo (1989) discovered that only the huge borrowers who were predominantly farmers benefited from the fixed interest rates during the period. Appraising the impact of the Structural Adjustment Program (SAP), Ikhide and Alawode (2001) established that Gross National Product would diminish if money stock is reduced through the decrease in interest rate. Thus, the Nigerian economy is not excluded from the notion that the economic activities in the circulation is a function of variation in money stock (Laidler, 1985).

Human capital development is recognized as a major factor of national development in all countries of the world and providing quality education is a major way of improving the quality of human resources. One of the challenges that face any modern economy is the achievement and the sustenance of economic growth and development with the ultimate objective of improving the welfare of its citizens. The society’s future depends largely on the quality of its citizen’s education because education is the main instrument used by the society to preserve, maintain and upgrade its social equilibrium. The education system is undeniably the major backbone of the development of any country as it inculcates in the individual, the ability to be a vital part in nation building.

Education enriches peoples understanding of themselves and the world; it improves quality of lives and leads to broad social benefits to individuals and society. Education raises people’s productivity, creativity and promotes entrepreneurship and technological advancement as demonstrated in several countries such as Malaysia, Bolivia, China (World Bank 1999). Schumpeter (1954) has similarly stressed the role of innovation which is a byproduct of education in the process of economic growth. Many developing countries have made significant progress in ensuring better access to education as evidenced by improvement in literacy and enrolment rates, higher quality and more equitable distribution of education services.

Public spending on education and training is not an end in itself. The goal of investment in public education is to create the skills and attitudes needed for higher levels of productivity and growth. Whether or not such growth will be achieved will depend not only on the amount of resources invested but also on the efficacy with which the inputs

are managed. The body invested with the power of the allocation of resources in Nigeria is the Revenue Mobilization Allocation and Fiscal Commission (RMAFC). Resource allocation to the education sector in Nigeria is achieved through annual budgets. Budgetary allocation to the education sector is channeled through appropriate organs of government and such funds are in turn disbursed to all the levels of education.

Over the past decade, Nigeria has been plagued by frequent political unrest. This political instability has generated negative effects on the education system. Although education has been in crisis for many years, the situation has recently been made worse by frequent strikes by teachers. Much of the difficulty lies in the fact that the sector is poorly funded. These results in shortages of materials and human resources for education: lack of qualified teachers, a brain drain for the public sector; few institutional inputs, shortage of classrooms and a host of other problems. Several of the issues in the financing of education in Nigeria are embedded in virtually endemic problems of fiscal federalism – in particular, the so called vertical and horizontal fiscal imbalances.

The first of these deals with the imbalance between financial responsibilities and financial resources at each level of government, federal, state and local. The second deals with equity across the subunits of each specific level of government such as state, or local government.

Following theenhanced contribution of petroleum to total federally collected revenue in the early 1970s, budgetary allocation to education sector took a rising trend. Education sector allocation as a proportion of total budgetary allocation rose from 0.69% in 1970 to 10.83% in 1976 dropped temporarily to 5.6% the following year as a result of some vagaries in the international price of crude oil. Since then, it has been fluctuating between 1.9% and 9% of total federal government expenditure which is far below the United Nations recommended minimum standard of 26% (UNESCO, 1998). As budgetary allocations to the education sector declined particularly since the introduction of the Structural Adjustment Program (SAP, 1986), school enrolment at all levels recorded an increasing trend and the number of educational institutions increased tremendously. These developments created severe infrastructural gaps in schools, per capita school infrastructures have declined as no new structures are built and old ones are not renovated. These features in the education sector has manifested in several problems. First, the classrooms are overcrowded, teaching aids are generally lacking. The scenario is not different in secondary and tertiary institutions where in addition to rusty and cranky classroom facilities, science laboratories are either non-existent or dilapidated. Nwaogwu, (1997), Sambo (2002).

The poor funding of the education sector in Nigeria is not limited to inadequate infrastructure alone but also on the incentive structure of staff in the school system. Teachers are the least paid in the entire public service in Nigeria; an indication of the nonchalant attitude of government with regards to the education sector.

One of the objectives of the Millennium Development Goals (MDGs) is to eradicate illiteracy; the fourth item on the seven point agenda of the Late Yar’Adua’s government was Human Capital Development (Education and Health). Strengthening human capital development according to the plan can be achieved by embarking on a comprehensive reform of tertiary institutions, sustain increased funding of primary and secondary levels of education, sustain increased funding for provision of basic health services and resolve dysfunctional education system.

It is said that the seven point agenda is a document aimed at bringing to reality the goals of the MDGs. If adequate attention is not given to education expenditure by the federal government, the goal of eradicating illiteracy as stipulated in the MDGs will not become a reality by 2015.

1.2 Statement Of The Problem

The rapid expansion of the education sector over the last three decades was compounded by the more recent global economic crisis and fiscal stringency due to over dependence on oil.This has left both the lower and higher-education institutions in Nigeria short of funds for their operations with respect to the demand imposed on them.

The idea that education is a form of investment in human capital is one of the most important developments in economics and it has had considerable impact on educational planning both in developed and developing countries. For both government and individuals, the choice between different ways of investing resources rest, to a large extent, on an evaluation of the costs and benefits associated with the investments.In Nigeria, the decline in the standard of education at all levels has become a fact of national life. Indeed the most significant event in the sector in the recent past has been the continuing crisis besetting the sector. This crisis is rooted in the degenerating conditions within the citadels of learning, with respect to teaching facilities and other infrastructural facilities, the welfare of those engaged in the teaching profession and the ever increasing cost of education. This has culminated in student unrest and industrial actions by lecturers and teachers through their respective umbrella associations such as Academic Staff Union of Universities (ASUU), Nigerian Union of Teachers (NUT) and so on at their different levels of the educational system. The study seeks to evaluate the Impact of Monetary Instruments on Educational Development in Nigeria from 2015-2020 which could be reflected on human capital development and the level of literacy in the Nigerian economy.

1.3 Objectives of the Study

The broad objective of this study is to evaluate Impact of Monetary Instruments on Educational Development in Nigeria from 2015-2020 in terms of how it has helped in the development of the sector. This study also intends to identify various alternative policy options available with a view to offer the best policy recommendation. Specifically the study intends to:

i. Determine if Monetary Instruments has impact on the development of the education sector.

ii. Assess the various education policies in Nigeria and its effect on the development of the education sector.

iii. The effect of interest rate on the level of literacy in Nigeria.

1.4 Research question

The study will provide answers to the following questions in order to achieve the research objectives;

i. Does Monetary Instruments have impact on the development of the education sector ?

ii. What are the various education policies in Nigeria and its effect on the development of the education sector ?

iii. What is effect of interest rate on the level of literacy in Nigeria ?

1.5 Hypothesis of the study

The following hypothesis was formulated and tested by the study

Hypothesis One

Ho: Monetary Instruments has no significant impact on the development of the education sector

Hi: Monetary Instruments have a significant impact on the development of the education sector

Hypothesis two

Ho: There is no significant effect of interest rate on the level of literacy in Nigeria

Ho: There is significant effect of interest rate on the level of literacy in Nigeria

1.6 Significance Of The Study

Public: Both the foreign and local investors will benefit from this work since the research exposes the impact of several monetary instrument on educational development. This will enable the investors to know when to and when not to invest.

Policy Makers: This research will also be beneficial to the policy makers seeing that the work .will reveal the impact of monetary instruments on·educational investment in. Nigeria. This will help the policy makers know the efficient monetary policy to make regarding certain policies.

1.7 Scope of the Study

The study attempts to examine impact of Monetary Instruments on Educational Development in Nigeria from 2015-2020. The choice of this period is necessitated by various factors. First, both positive and negative effects of monetary policy Instruments have been observed especially in the period before the Structural Adjustment Programme. During this period, direct control measures were used to regulate the money supply in the country. This therefore resulted in a lot of malfunctioning in the economy. Also, indirect controls were put in place by the Central Bank. Till date, both the direct and indirect controls are in use by the Central Bank to control the price level in the economy. The choice of the above period is also necessitated by the availability of data for the research work.

1.8 Limitation Of The Study

In the course of carrying out this study, the researcher experienced some constraints, which included time constraints, financial constraints, language barriers, and the attitude of the respondents. However, the researcher were able to manage these just to ensure the success of this study.

1.9   Definition Of Terms

Monetary Policy: Monetary policy is the policy adopted by the monetary authority of a nation to control either the interest rate payable for very short-term borrowing (borrowing by banks from each other to meet their short-term needs) or the money supply, often as an attempt to reduce inflation or the interest rate, to ensure price stability and general trust of the value and stability of the nation's currency.

Economic growth

Economic growth can be defined as the increase or improvement in the inflation-adjusted market value of the goods and services produced by an economy over a certain period of time. Statisticians conventionally measure such growth as the percent rate of increase in the real gross domestic product, or real GDP.