Rising Interest Rate And The Economy

Since the Central Bank of Nigeria (CBN) increased interest rate on lending, speculations on the possible effect of the increase on the economy is worrisome. Already, the poverty rate in the country is reaching a breaking point and nothing should be done to worsen it.

Coming at a time when Nigeria is reported to have dropped in the best business environment rating, the increase in interest rate is capable of aborting some business endeavours that would have provided the needed support for the economy and the people in particular.

While we hope that the CBN knows what it is doing, the cumulation of some of the economic indices that appear negative might affect the ordinary people in ways that can be profound. In the face of this hostile business environment, the Naira, the nation’s currency also fell to its lowest level in years.

Indeed, it was also reported that Nigeria has the lowest volume of borrowed funds among the major economies of Africa. What this comes down to is that even the money available in the economy is not properly mobilised for the development of the country.

We think that this situation should worry the government and provide the reason for some deliberate steps to slow down the downward glide of the economy. This needs to be done because the average Nigerian is already a financial wreck. To bank on the famed resilience of the average Nigerian is to risk too much.

The tread holding some people to realism has become too worn out and tiny. Indeed for some, it has snapped and resulted in people taking desperate steps to silence the lion in the stomach. Should anyone still wonder why robberies, kidnapping and swindling are making a swift come back?

It is already bad enough that access to credit in Nigeria faces avoidable hurdles, the increase on interest rate would make it impossible for many businesses to even aspire. If the challenge keeps out new businesses, the development is a dis-service, but it could also limit existing business and even stifle them.

The increase in interest rate may not have been much, but may be the reason a business folds and throws many workers out of job. For those in agriculture and housing, the interest rate is particularly hostile. Of course, the ripple effect that would follow this can be rather far reaching.

But this is only one side of the problem. While the interest rate rose from 8.75% to 9.25% in the formal sector, some organisations ask for as high as 18 – 20 percent. The government should find out why many people cannot access credit from the banks and have to patronize shylock financiers.

Our country should also be worried that banks still report bad debts. While the genuine business people are denied credit under one guise or another, loans are given to politicians and high social figures to use on frivolities. Often, these funds cannot be paid back because it was not originally intended to be refunded.

But our country cannot become developed without credit funds that people need to finance business. Even for the worker, especially the public servant, whose pay falls short, no staff can provide housing, one of the most basic human needs, if credits are not available for them to access and at an affordable rate.

Indeed, that is why some governments, including that of Rivers State  have provided loans for staff to build houses and buy cars among others. An average Civil Servant may never be able to save N1m in years but if granted one, can be re-paid over a period of time.

Bank credits are very important for the economy. As a government that is committed to the Millennium Development Goals and faced with the urgent need to provide employment for its teeming youths, it cannot afford to operate a run-away economy and expose the people to un-bearable conditions.

Efforts should be made to redress the irony that Nigeria is a rich country and its people are extremely poor. Nigeria cannot declare millions of petro-dollars monthly and have no money to run its economy. Let the oddities in the economy be redressed quickly starting with the interest rate regime in the country.