By Adedapo Adesanya
The Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA) has expressed concerns over the high rate of public sector borrowing from domestic banking institutions.
In a letter made public recently, the group called on both the Minister of Finance and Coordinating Minister of the Economy, Mr Wale Edun, and the Governor of the Central Bank of Nigeria (CBN), Mr Olayemi Cardoso, to look into the government’s involvement in the banking sector.
It said this had resulted in a crowding-out effect, whereby private sector entities are currently “facing exorbitant barriers to accessing finance, which in turn stifles their capacity for growth and contribution to the national economy”.
The association further noted that over-subscription of government debt instruments, at rates that eclipse the 21 per cent mark for treasury bills and even loftier premiums for state bonds, was “reflective of an economic milieu in urgent need of recalibration and judicious policy intervention”.
NACCIMA pointed out that while it acknowledged the challenges inherited by the current administration, “We also believe that opportunities exist for Nigeria to explore new ways of addressing the challenges of the current global economic climate”.
It stated that the current inflationary impact on Nigerians’ economic stability and purchasing power called for robust and multifaceted policy responses.
The group commended the efforts of the Finance Ministry as well as the strides of the CBN to mitigate inflationary pressures but noted that “this must be underscored by a synergistic approach where monetary policy is buttressed by prudent fiscal mandates.”
“The CBN, in strategic alignment with the Ministry of Finance, must architect a cohesive blueprint to minimize the inflationary effect of monthly FAAC allocations and the insatiable borrowing appetite of the public sector.
“Such a regime would release significant capital within the banking system, thus enabling more optimal allocation of resources and extension of credit to private enterprises at more competitive rates for entrepreneurial innovation and investment,” it further stated.
NACCIMA recommended that the CBN consider multiple tools in addition to the Monetary Policy Rate (MPR) and Cash Reserve Ratio (CRR) to manage the inflationary effect arising from increased FAAC allocations, adding that zero coupon stabilisation bonds and vouchers could be issued for FAAC allocations instead of cash.
The association said public and private sector liquidity management should be addressed on a sectoral basis and called for the establishment of a robust forward pricing exchange rate mechanism to facilitate investment planning, stability and long-term economic prosperity.
It further recommended sectoral limits on public sector borrowing and bond issuance as well as public sector debt repayments from excess FAAC allocations to free up funds for the real sector.
It added that a public sector debt redemption programme will result in interest rate reduction as well as reduce aggregate borrowing costs for the government.
NACCIMA also called for the opening of a two-year window for corporate bond refinancing programme to enable refinancing of corporate borrowings at a lower rate.
It added that the customs duty exchange rate dilemma could be addressed by recognising Naira as the de facto national currency, stressing that customs duty should be charged as a percentage of the Naira value used to open a Form M.