Tight Financial Condition to Checkmate Nigeria’s Growth

Despite efforts by the Nigerian government to drive growth, a tight financial condition has been named among other growth inhibit issues that would checkmate gross domestic product growth in the real term. In the past 8 years, Nigeria has suffered serious economic loss following a sustained decline in gross domestic product. A few years back, the government launched a plan to boost the country’s economic balance sheet to $900 billion under Vision 20:2020 agenda. It was not only that the vision was lost, Nigeria’s gross domestic product was just half the expectation as of 2020 under ex-President Mohammadu Buhari. Nigeria’s monetary policy tightening started in the first half of 2022 under ex-central bank chief, Godwin Emefiele – under whose benchmark interest rate rose from less 11.50% to 18.75%. Monetary policy has been chasing the air with successive interest rate hikes to combat hot red headline inflation which has continued to accelerate. High interest, according to analysts, would reduce credit creation as borrowers in the private sector would be forced to switch gears in terms of productive activities. “It is not only that borrowing tendency would be impacted negatively, but there is also a possibility that default risk would increase for local deposit money banks”, research analysts at LSintelligence said in an email correspondence. Even with a high-interest rate environment, garnished with double-digit high headline inflation, the government has been borrowing from local debt market at an abysmally low rate. On that, there has been a divergence in views between market players and some investment banking experts, according to MarketForces Africa’s report. Some critics said government paying inflation-exposed rates on local borrowings in the debt market is tantamount to financial repression. In a chat with MarketForces Africa, Sonnie Ayere, GMD/CEO DLM Capital said the government does not need to pay a premium on risk-free investments like bonds, Treasury bills among others. GDP growth in Nigeria has been slowed down consecutive and analysts discovered that economic performance is directly correlated with conditions in the global oil market. The moderation in Nigeria’s GDP growth reflects the cumulative impact of higher interest rates and tighter financial conditions, research analysts at LSintelligence Associates explained. Analysts said a decision to raise interest rates to fight high inflation has contractionary expectations on economy. “Interest rate is strong monetary tools to control borrowing government, individual and private sector’s borrowing behaviours. “Unfortunately, the government that is a top borrower is having fun in the local debt capital market with cheap funds, the same isn’t coming handy for private sector; the major drivers of growth” Despite the negative paints, the Nigerian economy continues to demonstrate its adaptability to shocks and policy cycles. President Bola Tinubu’s Government has demonstrated a greater willingness to actively use policy, including fiscal measures, to support the economy. Experts said a well-designed industrial policy can support the emergence of strategically important economic sectors, underscoring long-term growth, especially when governments incentivize productivity-enhancing innovation and upskilling. Modest growth prospects and rising interest rates mean that Nigerian government would face a delicate balance to tighten their fiscal belts while containing social risks.