CBN: Economist Warns Against Giving Room For More Government Borrowing

The Dean, Faculty of Social Science, Kaduna State University (KASU), Aminu Usman has expressed concern over the Central Bank of Nigeria (CBN) proposed 70% increase in the Loan to Deposit Ratio (LDR) in 2020, decrying that the CBN might create an avenue for the federal government to expand its borrowing and dry up credit for private businesses.

CBN had earlier proposed to increase the LDR from 60% to 70% in 2020 and said failure to comply with the directive would attract a levy of additional Cash Reserve Requirement equal to 50 percent of the lending shortfall of the target LDR by October 1.

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Usman who spoke to THE WHISTLER said banks should be made to enlarge their credit portfolio for the private sector who are at risk of shortage of fund, instead of lending most of the funds to the federal government.

“My concern is that CBN will make it comfortable for government to continue to expand their borrowing, and should government continue to borrow from banks, private sector will be at risk of shortage of funds.

“Am advocating for banks to extend the leverage CBN is granting them to mostly the private sector, rather than increasing their lending to the government,.” Adamu stated.

The economist said except the private sector is doing very well, government effort to improve the economy will be to no avail, adding that banks should see the whole process as avenue for them to lend to private businesses to boost the economy.

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He also called the CBN LDR policy as ideal if properly channeled,, as according to him, it will create employment, increase production and increase supply of money to fill the pilled-up consumption deficit so that Nigerians can have money to make purchase.

According to him, “Businesses will thrive if the loans are channeled to the private sector as it will create more jobs, increase production activities and increase consumption, it will also bring about a multiplier effect on the economy.”

Usman however said although there is consumption gap due to shortage of fund, increasing the LDR may lead to inflation if banks focus their loan towards consumption.

“Increasing the LDR will have its own side effect, there are lots of pent up demands which needs to be met, but then if care is not taken it will also cause inflation when you allow banks to lend not towards the activities of the economy but towards consumption, will result to inflation in the country.” He said.

He further stressed on the need for private sector to have sufficient fund to grow the economy.

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