Financial experts have called for a single lending rate to be able to attract the real sector of the economy in the year 2013.
Professor Akpan Ekpo, Director General, West African Institute of Financial and Economic Management(WAIFEM) who made the call during the Finance Correspondents Round Table Discussion for the economy at the weekend in Lagos, said, the Central Bank of Nigeria (CBN) should make the lending rate to be a single digit to be able to attract the real sector.”
According to him, “ Most banks in Nigeria are declaring huge profit and that means that they are making excessive profit. So if the lending rate is reduced the banks will readjust and make normal profit by lending to the real sector. I agree with the CBN that other things like infrastructure need to be put in place as well to make the real sector productive. But the reduction of lending rate will go a long way to reducing the cost of production.”
Corroborating the call for a single lending rate , Mr. Bismark Rewane, Managing Director, Financial Derivatives Company Limited, said that lower interest rates may not always boost spending and could result into liquidity trap for the economy.
According to him, “ A declining interest rate environment is expected in 2013 even as interest rate will continue to be market driven. “Interest rates to be influenced by the Central Bank of Nigeria’s adjustments of the Monetary Policy Rate (MPR) which is likely to be reduced from current level of 12 per cent per annum. But complete removal of fuel subsidy will stall interest rate reduction due to inflationary threats.”
Furthermore, while commenting on the economy, Rewane, said, “Gross Domestic Product (GDP) rebasing is expected to take place this year and as such would alter the base year to 2008 from 1990. It will also add N400 billion to the GDP.
The GDP is currently estimated at $273.8 billion. He said that by carrying out the exercise, Nigeria will be emulating Malaysia and South Africa which rebased their GDPs from 2000 to 2005 each and Ghana- from 1993 to 2006.
He said rebasing the GDP would make the rich richer, and poor poorer while the country’s growth trajectory will decline.
The GDP is the market value of all final goods and services produced within a country, calculated using product, income and expenditure approaches. According to Rewane, real GDP is one that is adjusted for inflation while nominal GDP is the value of goods and services based on current market prices.
He further explained that Gross National Product (GNP) measures the value of goods and services produced by a country’s citizens regardless of their location while Gross National Income (GNI) is GDP plus income receipts minus income payments from the rest of the world.
He said that Nigeria’s real GDP growth could decline from seven per cent to five per cent in 2013 adding that fiscal deficit as a percentage of GDP is usually at a threshold of three per cent. Applying this principle, maximum deficit for 2013 would have been N1.3 trillion while the rebasing will allow for a deficit of N900 billion or 1.5 per cent.