Abuja — In the report of a study on the Nigerian economy conducted by the World Bank, it was reported to have declared that the economy does not suffer from credit crunch. If, as we have been made to believe, it is government's avowed policy to ensure a private sector-led economic growth, we find in the reports an over simplification of the problem.

While we agree that credit crunch, suffered in some countries as a result of the global economic crisis, is an acute situation that may not be applicable to the country, we are persuaded to believe from current realities that there are serious funding issues in the economy.

Saying that there was no credit crunch in the system and that the private sector was starved of funds due to government's heavy reliance on the money market to fund its huge deficits, is not synonymous with saying the economy is blessed with steady flow of credit to vital sectors.

The occasion was a dialogue of the financial sector with President Goodluck Jonathan on Friday, August 27, 2010, at the State House, Lagos, attended by the World Bank, key economic managers of the country, selected members of the Organised Private Sector (OPS) and captains of industries.

Present were Ministers of Finance, Olusegun Aganga, National Planning, Dr. Shamsudeen Usman, Petroleum Resources, Mrs. Deziani Allison-Madueke, Governor of the Central Bank of Nigeria (CBN), Malam Sanusi Lamido Sanusi represented by Dr. Kingsley Moghalu Deputy Governor, Financial System Stability and the Director- General of the Securities and Exchange Commission (SEC), Ms. Arunma Oteh.

Highlights of the presentation by Mr. Isma'il Rodwan of the World Bank Nigeria Country Mission included the facts that:
 Nigerian banks before the intervention of the CBN, were not lending significantly to the economy, but instead lending was concentrated on margin loans to the capital market, as well as oil and gas;
Spurious lending between 2006 and 2009, directed to areas that had no impact on economic growth led to unsustainable credit growth in excess of 100 per cent and caused a bubble burst later.

Reforms of the banking sector by the CBN were necessary and timely.
The growing fiscal deficit is the major risk facing the Nigerian economy at this time. The World Bank attributed this to increased government expenditure and increasing level of borrowing by the Federal Government, both internally and externally, while oil income inflows have been decreasing.
From available records, Federal Government's total public debt stock was about US$ 29.62 billion (N4.4 trillion) as at the end of June 2010. This comprises external debt stock of US$4.27 billion (N634 billion) and domestic debt of US$25.35 billion (N3.812 trillion).

But government has described this as sustainable because the benchmark acceptable by the international community is 40 per cent of GDP and that approximately 85 per cent of the external debt is concessionary loans with very favourable terms from development banks.

We wish to observe that for its research, the World Bank must have dwelt much more on the past, but it did note some current trends such as increased government borrowing and the crowding out of the private sector.

We note the concern of Godwin Abugu, president of the National Association of Small and Medium Scale Enterprises who lamented that 95 per cent of his members do not have access to bank loans for obvious reasons.
It is indeed common knowledge that for reasons such as aversion to risk, banks have reduced lending to the private sector considerably, and are rather preoccupied with the recovery of outstanding debts.
In fact, one report says, The World Bank has noted that less than one per cent of Nigerian businesses have access to bank finance.

We note that if credit was less of an issue, the CBN intervention funds to troubled industries may not have been necessary.
So, we disagree with interpretations that The World Bank report declared an Eldorado for the Nigerian economy.

Although there may not be a credit crunch, the private sector which should be the engine of sustainable economic growth could do with more credit. And while large scale direct government intervention may not be feasible, it could improve the investment climate to forestall business failure and embolden the banks to lend more.

Also, it is important that government learns to live within its means, especially by desisting from borrowing to fund consumption. That is bad! So is crowding out the private sector from credit sources.