The Lagos Chamber of Commerce and Industry, (LCCI) has said that Nigeria’s 40% debt-to-GDP ratio does not reflect the underlying sustainability risks facing the country with a weak correlation between Gross Domestic Product (GDP) and revenue.
According to the President of LCCI, Toki Mabogunje during its quarterly press briefing in Lagos, Nigeria’s largest contributors to GDP; agriculture, and distributive trade, have no significant contribution to revenue to support servicing of debt obligations.
She added that with Nigeria’s total public debt at N32.9 trillion, it represents 22 per cent of nominal GDP as at end-December 2020, below the 56 per cent threshold recommended by the World Bank and the International Monetary Fund (IMF) for developing countries.
“We note the Presidency’s approval of the medium-term debt management strategy for the period 2020-2023. Major highlights of the policy document include (1) Upward revision of the country’s debt-to-GDP threshold from 25% to 40% to accommodate new borrowings to fund budget deficit and other government’s obligations; (2) Targeted mix of domestic and external composition of debt stock of 70% and 30% respectively; (3) Average tenor of at least 10 years on government’s debt portfolio and (4) Targeted mix of long-term and short-term mix of domestic debt stock of 75% and 25%.
“Official statistics point to Nigeria’s weak fiscal position with average debt costs to revenue ratio settling at 59.4 per cent between 2015 and 2020.
“This portends serious medium-term fiscal sustainability risk given the country’s persistent revenue challenge.”
She noted that, “we acknowledge the Federal Government’s drive in boosting revenue mobilization via the Strategic Revenue Growth Initiative (SRGI), it is even more important for state governments to be very innovative about revenue generation.
“We note that majority of Nigeria’s debts are not linked to assets or specific projects. As such, it is critical to create a national asset register, and have a coordinated mechanism in place for valuing and managing Nigerian assets.
“Government’s penchant for issuing new debt to redeem maturing ones is not an optimal debt management strategy. It is critically important to replace existing debts with asset-linked securities to reduce debt cost. This will ease the pressure of debt service on the budget.”
The LCCI boss maintained that it is a collective responsibility to seek and demand an enabling investment environment for the advancement of the Nigerian economy and the good of all investors and economic players.
She stressed that in achieving this, there is a need to have the right policy and regulatory framework.
“The environment must support businesses, preserve investments, and create job opportunities.
“An investment-led growth strategy is key to sustaining growth recovery over the medium term. Genuine commitment in implementing key broad reforms would not only stimulate output growth but would also put the nation on the path of macroeconomic stability over the medium term”, she said.