By Merit Ibe, Lagos
The Lagos Chamber of Commerce and Industry (LCCI) has denounced the rising stock of government debt, saying it is becoming increasingly problematic in the face of shrinking government revenue and an unsustainable burden grant payments.
The chamber noted that the fact that the most recent government revenue statistics show poor performance and rising government costs, clearly shows that Nigeria is going through a debt crisis.
Chamber Speaker Dr. Michael Olawale-Cole noted that while total expenditure for 2022 was estimated at N17.32 trillion (total federal budget), at the end of April prorated revenue of N5.77 trillion naira were expected.
“Unfortunately, only N1.63 trillion was realized as FGN retained revenue in April 2022. During the same period, actual government expenditure was N4.72 trillion represented by a colossal sum of 1.94 trillion naira spent on debt service, 1.26 trillion naira spent on personnel costs and leaving only 773.63 trillion naira in capital expenditure. knowing that debt service alone is greater than actual undistributed income in the first four months of this year. On the path to caution, we urge the federal government to end this unsustainable pattern.
“The total public debt stock of the Federal Government, States and the Federal Capital Territory (FCT) has increased from N39.56 trillion in December 2021 to N41.60 trillion (approximately N100.07 billion). dollars) at the end of the second quarter of 2022, as disclosed by the Debt Management Office (DMO). Nigeria’s debt-to-GDP ratio now stands at 23.27%, down from 22.43% as of December 31, 2021. There are already concerns that most, if not all, of the medium-term expenditure framework assumptions ( MTEF) 2023 -2025 will be missed as we continue to experience unprecedented levels of disruption to supply chains and agricultural production. The budgetary assumptions for 2022 are already insufficient in terms of inflation, exchange rate and GDP growth rate. All of these assumptions have become inadequate.
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“Borrowing is increasing dramatically and Nigeria is struggling to repay these debts due to difficulties in revenue mobilization and the increasing burden of fuel subsidies. The International Monetary Fund (IMF) has warned that debt servicing could eat up 100% of federal government revenue by 2026 if the government does not implement adequate measures to improve revenue generation. The World Bank also said Nigeria will continue to face fiscal pressures due to soaring fuel subsidy prices at a time when production continues to fall. Nigeria is the only major oil exporter that has not benefited from the windfall of rising world oil prices. In the face of rising debt servicing costs accompanied by falling incomes, the provision of essential infrastructure and amenities such as health services, education, electricity, roads and security will be hard hit as funding dwindles. We have been witnessing the unfortunate closure of our universities since February, and so far, no respite in sight.
“The Chamber recognizes that the level of insecurity in the country has led to increased defense and security spending. The deteriorating security situation in the country has also shaken investor confidence and affected FOREX inflows into Nigeria. With the large component of Eurobonds in our external debt, the weakening of the naira means significant currency risk which is likely to put pressure on inflation and its consequences, which we are already seeing today. A weaker Naira means more expensive external debt for the country.
“Recently, the Debt Management Office (DMO) listed 250 billion sukuk on the Nigerian Exchange Limited (NGX) as an alternative source of finance to bridge the infrastructure gap in the country. The issuance and subsequent listing of the Sovereign Sukuk on the NGX platform aligns with the House’s persistent call for cheaper public funding away from debt by leveraging innovative and profitable revenue streams.
“The Chamber has always advised the government to borrow from cheaper sources and consider financing the deficit with equity instead of expensive debt borrowed and used for recurrent spending. The proposed commercialization model for NNPC Limited is the right direction to follow. Once this plan succeeds next year, it should be replicated with other national company assets scattered across the country. Nigeria needs to manage its debt burden to avoid further pressure on its revenues. It is also imperative that more spending is needed to support productive infrastructure instead of spending borrowed money to subsidize consumption. The government needs to rethink its sourcing of debt and the spending of borrowed funds.