AUN's Vice President for Finance, Ms. Nnenna Mosugu, says a high interest rate regime worsens the nation's economic conditions, especially small-scale businesses. She pleaded with the Federal Government to prioritize poverty alleviation by raising productivity and lowering lending rates.
The VP of Finance, who was a guest on Gotel TV's Business Today morning program, made contributions to the "State of the Economy: analyzing current economic realities" and argued that before raising the interest rate, pushing for cashless policy and reducing the amount of money in circulation through the instrument of redesigning the currency, proper arrangement and facilities that will enhance smooth online transaction should have been put in place to avoid the internet congestion that has impeded online money transactions resulting in the massive queueing experienced at the moment in banks in the bid to cash limited money from ATMs.
"The impact of increasing interest rate from 16.5 to 17.5 percent is huge. It is reasonable that Government would want to reduce the amount of currency in circulation, and when the amount of currency in circulation is reduced, the idea is that it brings down inflation", she stated, adding, however, that "the drivers of the inflation rate in Nigeria are more on the supply side than on the demand side."
The VP stressed that increasing the supply rate rather than attempting to reduce it might even yield a more favorable result if the larger aim were merely to curb inflation.
Ms. Nnenna Mosugu also explained that reducing the money in circulation should never have been an end but should be pursued alongside a policy to increase overall national productivity. "That means paying attention to increasing production and helping the manufacturing sector to produce more goods that people can spend money to buy. These would help to force down inflation, to manageable levels".
Justifying her argument, the VP of Finance explained that many organizations thrive on borrowing, which helps run their operations. With the increase in interest rate now, that means businesses will pay 25 percent or more per annum for every loan they take, and considering how lots of businesses have been struggling to survive because of the hike in petrol, diesel, and transportation, that means the burden of these costs will be transferred to the consumers who buy whatever that is produced or manufactured.
Mrs. Mosugu, who faulted the Monetary Policy Committee on the interest rate, said what that means is that prices will go up again, thereby increasing the suffering that people are already going through.
She further said that as of 2022, the Central Bank of Nigeria (CBN) funded the Federal Government treasury with about 20 trillion Naira, which means this money is expected to be in circulation. At the same time, the interest rate is increased, discouraging both small businesses and organizations from taking loans, which means that trying to recall money in circulation will be counterproductive.
"Talking human capital, out of about 200 million peoples in Nigeria about 133 people fall under the poverty line, according to the Nigeria Bureau of Statistics(NBS). That is about 62 percent of Nigerians that are poor and can't afford daily meal. Sometimes it seems just a number until you go out into the market and see how people are suffering, struggling to get one meal a day," she said.
She concluded that the overall aim of monetary and fiscal policy should be to empower people to produce more to address the country's inflation and poverty challenges.
Reported by John Abah