Budget deficit undermines investors’ confidence – SEC

The Director General of the Securities and Exchange Commission, Mounir Gwarzo, has said large budget deficits can affect stock prices and undermine investor confidence.

Speaking yesterday at the 2017 Budget seminar, organized by the SEC, Gwarzo said the primary concerns for investors, in regard to both the budget deficit and the public debt, were the two related issues of interest rates and inflation. “Increasing levels of public debt and continuing budget deficits naturally lead to higher interest rates,” he said.

At the seminar titled: “The 2017 Budget of Growth and Recovery: Relevance, Implications and Perspectives of the Nigerian Capital Market” Gwarzo said “As the apex regulator of the capital market, it is essential that we consider the impact of the 2017 budget on the Nigerian capital market. Even more important is the question, “How can the capital market contribute more meaningfully to the growth and recovery process which the 2017 budget seeks to promote?” I’m sure you will agree that the relationship between the 2017 budget and its impact on the capital market deserves to be analyzed at a dedicated forum such as this”.

A presenter at event Dr Afolabi Emmanuel Olowookere observed that the expansionary 2017 budget is necessary to return the economy to the path of growth and recovery. “In financing the budget deficit, the debt segment of the capital market will derive some immediate benefits”. Also, stocks performance of companies that produce/ supply goods to government priority sectors will likely improve. However, he observed that the process of financing the budget deficit will further crowd out private investment.

Major highlight include the fact that government deficit financing ultimately increases cost of funds to the private sector and influences asset reallocation in favour of government securities, conscious efforts need to be made to drive initiatives that generally improve the financial performance of listed companies and by extension, performance of the equities market.