KADUNA- The Securities and Exchange Commission (SEC), yesterday raised alarm over the current liquidity squeeze in the country, warning that dire consequences awaits the economy if the current cash squeeze in the capital market is allowed to persist.

Director General of the SEC, Mr. Musa Al-Faki disclosed this while addressing capital market correspondents at a 3- day seminar oganised by SEC in Kaduna

According to him “ High unemployment rate which can lead to inability of people investing in the market can be the direct fallout of both the fiscal and monetary policies starving the market of funds.

He said “ The fiscal policy has to do with the use of tax regime to fund government activities while the monetary policy is the manipulation of quantity of currency in the economy. If government increase taxes , disposable income will go down . This will lead to low level of investment in the capital market people will have little money as disposal income to finance their day to day activities.”

Al-Faki added, “Again if the monetary authorities mop large money from the economy which can cause credit crunch which is a situation in which financial institutions are not given credit as expected. In this kind of situation prospective investors will lack appropriate capital for business expansion.

Investment and productivity will not grow, unemployment will rise , then disposal income will again go down and people will not be able to invest in the capital market.”

Speaking on the need to sustain the growth recorded in the capital market so far, he stated that government should as a matter of urgency address the infrastructural problem which has impede the growth of the real sector.

According to him “No rational foreign investor would want to invest in an economy where the cost of transactions are high and also the environment is hostile.

However, it is now widely acceptable, even, internationally that the Nigerian capital market has undergone a phenomenal growth and development in the past five years.

Though, there are challenges associated with the unprecedented high level of the present day Nigerian capital market. Importantly, to maintain the momentum of such growth and surmount the accompanied challenges there is need for continued capacity development among stakeholders.”

Also in his speech, Managing Director, Nigerian Capital Market Institute (NCMI), Dr. Oluwatobi Oyefeso, said that the federal government has step up measures to develop the nations bond market, which has not been fully utilised.

He added that the Nigerian financial system was currently 95 per cent equity based, a development that shows that Nigerians have no confidence in the bond market.

“If you look at the system here, corporate organisations do not use bonds to raise funds because the rates are fixed. They prefer to use equities because if a business goes bad, at the end of a financial year they are not required by law to pay dividend because they did not record any profit.”

On the need to develop the Nigerian financial system, he noted that countries with better financial systems tend to grow faster.

Oyefeso added that the levels of banking development and stock market liquidity each exert a positive influence on economic growth.