The national leader
of the All Progressives Congress, APC, Bola Tinubu, has advised President
Muhammadu Buhari on how he can reduce the suffering of Nigerians and save the
economy currently being threatened by the outbreak of coronavirus.
Tinubu, in a lengthy
statement he signed and made available on Sunday afternoon, noted
that high-interest rates are a fundamental drag on national economic growth.
He called on Buhari
to reduce interest rates, adding that while lower rates will spur domestic
investment and production, creates both jobs and wealth, high rates serve only
to suppress these vital factors.
He said although
lower rates will have some negative short-term impact on inflation and the
exchange rate, the economic dislocations caused by the coronavirus will serve
to mitigate those temporary negative consequences.
“If there is a time
to reduce interest rates, that time is now,” Tinubu said.
The APC leader noted
that the central banks of all major economies have driven their prime interest
rates below one per cent and nearer to zero percent in order to stimulate their
economy.
He added that these
central banks are also lending vast amounts at low rates just to support to
their industries and firms.
“My position has
always been one of reticence to foreign-denominated debt due to repayment
challenges. However, if we need foreign currency to buy items essential to
protecting the nation from the coronavirus now is the time to borrow.
“The World Bank and
other DFIs have said they will grant loans at concessionary rates. We should
hold them to their word and demand a renegotiation of existing loans or debt
relief.
“While we are not
yet inundated with the medical fallout of corona, we too suffer gravely from
the economic and financial effects of the contagion. The rest of the world
understands the imperative of lower interest rates. We should not pretend to be
blind to that which every other major nation sees.
“If this crisis is
to have any positive economic aspect, let it be that we used this moment to
drive down interest rates. To apply the rate reduction only to future loans
would be prejudicial to current bank debtors.
“Thus, the financial
authorities should consider formulating regulations that banks must reduce the
high interest rates on existing business loans to the new lower general rate.
This can be achieved through regulations requiring banks to automatically
roll-over existing loans at the lower rate or regulations stating this must be
done if the borrower so requests.
“Any such change
will alter the profit structure of most banks. To help moderate the change, the
government should provide generous tax relief to the banks.
“Additionally, the
government should institute a special bond-purchasing program where banks can
purchase interest-bearing government bonds at a significant discount or even on
credit for a period of years.
“The central bank
should give banks liberal access to its discount window in order to participate
in such programs. These programs are intended to be transitional and thus will
sunset in 3-5 years.
“During the
transitional period, banks will have time to alter their lending practices.
They must begin to earn profits from higher volumes of business and consumer
lending at much lower profit margins per loan.
“In this way, our
banking system will finally advance into the modern banking practices that have
served as the linchpins for growth in any prosperous nation one can name.
“There will be some
initial jitters and anxiety. In the end, this will materially help us by
sparking much needed private sector investment borrowing and encouraging
suitable levels of consumer borrowing.
“Such borrowing will
complement and thus lessen the amount of direct fiscal stimulus government must
provide. The lower rates will be politically popular as well as economically
benign at this time. Lower rates might dissuade some foreign speculators, but
most speculative money has returned to its host nation at this point. So, the
effects of lower rates will be muted. For those speculators still sensitive to
arbitrage opportunities, our rates, albeit lower, will still be visibly above
those obtained in any Western economy.
“Yes, the lower rates
will put pressure on the exchange rate. However, much of that pressure has
already been priced into the exchange rate due to capital flight and lower oil
prices caused by the viral outbreak. Moreover, shipping and the import-export
business are at a minimum.
“With trade at a
minimum, this is again an opportune moment to allow downward pressure on the
exchange rate; the practical effects will be minimised since trade has already
been materially reduced.
“Another
consideration we must weigh regarding interest rates is how lowering rates
along with other innovations may unlock the potential for real estate to be
catalyst for economic growth at this moment.
“The global economy
will not rebound for several months if not longer. We must seek ways to inject
liquidity into the economy and foster activity. Should the CBN lower rates as
well as allow for longer-term mortgage notes, real estate would become a better
functioning collateral for investment borrowing not only for the housing
industry, but for the general economy.
“Reform of
government mortgage agencies and policies will further allow us to deepen both
the primary and secondary mortgage markets in ways that increase liquidity and
spur economic activity independent of what may be happening in the outside
world,” part of Tinubu’s statement said.
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