National leader of the All Progressives Congress, (APC), Bola Tinubu. He advised President Muhammadu Buhari how he could reduce the suffering of Nigerians and save the economy currently threatened by the outbreak of coronavirus.
Tinubu, in a long statement he signed and made available to Tropics Nigeria on Sunday afternoon, noted that high interest rates are a fundamental obstacle to the country’s economic growth.
He urged Buhari to lower interest rates, adding that while lower rates will stimulate domestic investment and production. This would create both jobs and wealth, high rates only serve to suppress these important factors.
He said that although lower rates would have some short-term negative impact on inflation and exchange rate. Economic dislocations caused by coronavirus would serve to alleviate these temporary negative consequences.
“If it’s time to lower interest rates, this time is now,” said Tinubu.
The APC leader noted that central banks of all major economies have raised their basic interest rates below one percent and are approaching zero to stimulate their economy.
He added that these central banks are also lending huge amounts at low interest rates just to support their industries and companies.
“My position has always been to be reluctant to foreign currency debts due to repayment challenges. However, if we need a foreign currency to buy items necessary to protect the nation from coronavirus, now is the time to borrow.
“The World Bank and other DFI have announced that they will grant loans at concession rates. We should keep their word and demand renegotiation of existing loans or debt cancellation.
“Although we are not yet inundated with medical crown fall, we also suffer severely from the economic and financial consequences of infection. The rest of the world understands the imperative of lower interest rates. We should not pretend to be blind to what every other great nation sees.
“If the crisis is to have any positive economic aspect, let us use this moment to lower interest rates. Applying interest rates only to future loans would be bad for current bank debtors.
“In this regard, financial authorities should consider formulating rules according to which banks must reduce the high interest rate on existing business loans to a new lower overall rate.
“Any such change will affect the profit structure of most banks. To help mitigate change, the government should provide a generous tax break for banks.
“In addition, the government should introduce a special bond purchase program. This will help banks can purchase interest-bearing government bonds at a significant discount or even on credit over a period of years.
“The central bank should give banks free access to a discount window in order to be able to participate in such programs. These programs are to be of a transitional nature and will therefore expire in 3-5 years.
“During the transition period, banks will have time to change their credit practices. They have to start gaining profits from higher volumes of loans for enterprises and consumers with much lower profit margins on loans.
“In this way, our banking system will eventually move on to modern banking practices that served as pillars of growth in any prosperous country that can be called.
“There will be initial tremor and anxiety. Ultimately, this will help us materially, stimulating much-needed private sector investment loans and encouraging the right level of consumer loans.
“These loans will complement and thus reduce the amount of direct fiscal incentives that the government must provide. Lower rates will be popular both politically and economically at this time. Lower rates may discourage some foreign speculators, but most speculative money has returned to the host country at this point. So the effects of lower rates will be muted. For those speculators who are still sensitive to the possibilities of arbitration. Our rates, though lower, will still be clearly higher than those obtained in any Western economy.
“Yes, lower rates will put pressure on the exchange rate. However, much of this pressure has already been valued at the exchange rate due to capital flight and lower oil prices caused by the virus outbreak.
“With minimal trade, this is again the right time to allow pressure to lower the exchange rate. Practical effects will be minimized because trade has already been significantly reduced.
“Another issue we need to consider in terms of interest rates is how lowering rates along with other innovations can unlock the potential for real estate to be a catalyst for economic growth at the moment.
“The global economy will not bounce back for several months, if not longer. We must look for ways to increase liquidity in the economy and support business. If CBN reduced interest rates and also allowed long-term mortgage bills. Real estate would become a better-functioning collateral for investment loans not only for the housing industry but for the economy as a whole.
“The reform of government agencies and mortgage policies will allow us to further deepen the primary and secondary mortgage market. In a way that will increase liquidity and boost business.