By Merit Ibe, Lagos
The Lagos Chamber of Commerce and Industry (LCCI) has cried out over the rising debt stock incurred by the government, saying it was becoming increasingly problematic in the face of dwindling government revenue and the unsustainable burden of subsidy payments.
The chamber noted that the fact that the most recent statistics on government revenues show poor performance and mounting government costs, makes it evident that Nigeria is going through a debt crisis.
President of the chamber Dr Michael Olawale-Cole noted that while the aggregate expenditure for 2022 was estimated at N17.32 trillion (total federal budget), at the end of April, a pro-rata revenue of N5.77 trillion was expected.
“Unfortunately, only N1.63 trillion was realised as FGN’s retained revenue as of April 2022. Within the same period, the 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 on capital expenditure. It is disturbing to know that debt servicing alone is higher than actual retained revenue in the first four months of this year. On the path of caution, we urge the Federal Government to discontinue this unsustainable pattern.
“The total public debt stock of the Federal Government, 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). Nigeria’s Debt-to-GDP ratio now stands at 23.27 per cent, as against 22.43 per cent on December 31, 2021. There are already 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. The 2022 budget assumptions have already fallen short in terms of inflation, exchange rate, and GDP growth rate. All of these assumptions have become inadequate.
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“The borrowings are significantly increasing, and Nigeria is struggling to service these debts due to revenue mobilisation challenges and an increased fuel subsidy burden. The International Monetary Fund (IMF) has warned that debt servicing may gulp 100 per cent 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 fiscal 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 acknowledges that the level of insecurity in the country has prompted increased spending on defence and security. The deteriorating security situation in the country has also battered investors’ confidence and affected 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.
“Recently, the Debt Management Office (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 align 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. The commercialisation 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 subsidising consumption. Government must rethink its sourcing of debts and spending of borrowed funds.”