The Central Bank of Nigeria’s 12 per cent benchmark interest rate is one major factor that has led to the increased debt burden facing the country, experts have said.

They noted that until the CBN reviewed the Monetary Policy Rate downward, Nigeria might keep finding it tough to reduce its debts, whether domestic or foreign.

According to them, the inability of manufacturers and businesses in the real sector to obtain loans with ease has slowed activities in the private sector.

This, they said, had direct consequences on the incomes of both government and private sectors.

The Chief Executive Officer, Economics Associates, Dr. Ayo Teriba, observed that the Minister of Finance was right when she said the nation’s debt burden was worrisome. He explained that the CBN’s recurrent policy changes on MPR had not helped the country, stressing that the finance minister needed to call the bank to order.

He said, “Interest rates are on the increase as a result of the persistent policy programmes by the Nigerian government as directed by the Monetary Policy Committee of the CBN. At the time the CBN was hiking rates, nobody in the Ministry of Finance, although it wasn’t this minister who was there that time, but nobody in the ministry said anything.

“Nobody made any comment that this was going to raise the debt servicing burden on the Nigerian government. So now that the finance minister is saying it, it is a challenge for Nigeria to try and boost the agencies in charge of macro management to coordinate their activities.”

Last year, the CBN, in a bid to check inflation, raised MPR for about six times. The bank increased interest rates from a little above six per cent to 12 per cent by the end of 2011. It had maintained this rate despite calls to review it downwards.

The Minister of Finance, Dr. Ngozi Okonjo-Iweala, last Monday described Nigeria’s huge domestic debt as worrisome, stressing that the interest rates charged by Deposit Money Banks in the country were too high.

She said, “We need to slow down the rate of borrowing domestically, it is worrisome. We have been trying to decelerate the rate at which the domestic debt is accumulating. In the 2011 budget, we borrowed N852bn, we reduced it to N744bn in the 2012 budget and we are going to take it further down in the 2013 budget.”

The interest rates are too high and short-term. We are looking at how the banks can be developmental in approach.”

In his submission, the former President, Association National Accountants of Nigeria, Dr. Samuel Nzekwe, said rather than keep hiking rates in a bid to check inflation, the CBN should try alternative measures.He said, “We cannot continue like this in Nigeria. The present MPR is affecting every sector of our economy, and I don’t think it’s been easy with most of these sectors. So it is not a surprise that our domestic debt is that huge.”

Source: Punch