Why Nigeria govt. must takes caution over debt profile of N33trn-LCCI

Lagos Chamber of Commerce and Industry (LCCI) has called for caution on the continued use of debt to meet fiscal obligations especially at a time that the country is struggling to generate adequate revenue.

This was disclosed by the president of LCCI, Mrs.Toki Mabogunje at a media briefing on the state of the economy.

She explained that the federal government have secured $3.4 billion and $288.5 million credit facilities from the International Monetary Fund (IMF) and African Development Bank (AfDB) respectively, while discussions are on-going for another $1.5 billion facility from the World Bank. This could possibly push the country’s debt stock to around N33 trillion by year-end, equivalent to 22 per cent of Gross Domestic Product (GDP).

“The Lagos Chamber is deeply concerned about the country’s rising debt portfolio.”

She noted that according to official statistics from the Debt Management Office, public debt stock increased by 4.5 per cent to N28.63 trillion as of March 31, 2020, from N27.40 trillion as of December 31, 2019.

“We note the Federal Government’s resolve to raise funds locally and externally to bridge the deficit in the fiscal budget.”

“We call for caution on the continued use of debt to meet fiscal obligations especially at a time the country is struggling to generate adequate revenue. The option of equity financing should be more rigorously explored, and it is a better and more sustainable financing strategy that could be deployed to bridge fiscal deficit.”

She further stressed that the recent adjustment of the exchange rate from N360/$ to N381/$. This is a step in the right direction towards unifying the multiple exchange rates and improving transparency of the country’s forex management and having to regard to supply-side challenges in the forex market.

“Depreciation of the local currency has positive and negative implications for the economy. It would boost the naira value of oil revenue, reduce exchange rate premium between the official and parallel market rates, discourage round-tripping, ease the liquidity crisis in the forex market and correct external imbalances.”

“We, however, acknowledge the implications for production cost, investment, Federal Government budget earlier predicated on N360/$, project cost with foreign currency components and external debt obligations by corporates and government.”