The Lagos Chamber of Commerce and Industry (LCCI) has expressed serious concern on the country’s rising debt profile and servicing, against dwindling revenue, calling on the Federal Government (FG) to discontinue the “unsustainable pattern”.
The call is contained in a release signed Sunday by the Chamber’s President, Asiwaju Michael Olawale-Cole.
The President noted that total public debt stock of the FG, states, and the Federal Capital Territory (FCT) rose from N39.56 trillion in December 2021 to N41.60 trillion (about $100.07 billion) by the end of the second quarter of 2022, as revealed by the Debt Management Office (DMO).
He recalled that Nigeria’s Debt-to-GDP ratio now stands at 23.27 percent, as against 22.43 percent on December 31, 2021, adding that there were concerns that most, if not all, of the assumptions in the Medium-Term Expenditure Framework (MTEF) 2023-2025 will be “missed as we continue to experience unprecedented levels of disruptions to supply chains and agricultural production”.
Asiwaju Olawale-Cole asserted that the 2022 budget assumptions have already fallen short in terms of inflation, exchange rate and GDP growth rate, faulting that the permutations have become inadequate.
LCCI statement reads in part: “The borrowings are significantly increasing, and Nigeria is struggling to service these debts due to revenue mobilization challenges and an increased fuel subsidy burden. The International Monetary Fund (IMF) has warned that debt servicing may gulp 100 percent of the Federal Government’s revenue by 2026 if the government fails to implement adequate measures to improve revenue generation.
“The World Bank has also said that Nigeria will continue to experience itfiscal pressures due to the ballooning cost of fuel subsidy at a time when production continues to decline. Nigeria is the only major oil exporter that hasn’t benefited from the windfall of higher global oil prices. In the face of rising debt servicing costs accompanied by a dwindling revenue, the provision of critical infrastructure and amenities like healthcare services, education, power, roads, and security will be hard hit as funding shrinks. We see the unfortunate closure of our universities since February, and till now, no respite in sight”.
The Chamber, the statement indicated acknowledges that the level of insecurity in the country has prompted increased spending on defence and security, adding that the situation in the country has also affected investors’ confidence and impacted FOREX inflows into Nigeria.
“With the high component of Eurobonds as part of our external debt, the weakening of the naira signifies a significant exchange rate risk that is likely to put pressure on inflation and its attendant consequences, which we already see today. A weaker Naira means a more expensive foreign debt for the country” Asiwaju Olawale-Cole restated.
He recalled that DMO) listed N250billion Sukuk on the Nigerian Exchange Limited (NGX) as an alternative financing source to bridge the infrastructure gap in the country.
The issuance and subsequent listing of the Sovereign Sukuk on the NGX platform LCCI affirmed aligns with the Chamber’s persistent call for cheaper government financing away from debts by leveraging innovative and cost-effective revenue sources.
“The Chamber has consistently advised the government to borrow from cheaper sources and consider deficit financing from equity instead of the expensive debts borrowed and used for recurrent expenditures.
“ commercialization model proposed for NNPC Limited is the right direction to go. Once this plan succeeds next year, it should be replicated with other national corporate assets scattered across the country. Nigeria must manage its debt burden to avoid further pressure on revenue. It is also imperative that more spending is needed in supporting productive infrastructure instead of spending borrowed money on subsidizing consumption.
“Government must rethink its sourcing of debts and spending of borrowed funds” LCCI maintained.
Earlier, the statement established that Nigeria is going through a debt crisis, putting the aggregate expenditure for 2022 at N17.32 trillion (total federal budget), at the end of April, a pro-rata revenue of N5.77 trillion was expected.
The Chamber expressed worry that only N1.63 trillion was realized as FGN’s retained revenue as of April 2022, adding that within the same period, government’s actual spending stood at N4.72 trillion, accounted for by a whooping sum of N1.94 trillion expended on debt servicing, N1.26 trillion spent on personnel costs and leaving only N773.63 billion for capital expenditure.