The Lagos Chamber of Commerce and Industry (LCCI) has warned the Federal Government that remaining within the current debt-to-GDP threshold is an unreliable method of calculating Nigeria’s current debt burden.
According to the chamber, the government must review its borrowing parameters in light of the country’s current debt-to-revenue ratio, which is cause for concern.
Asiwaju Michael Olawale-Cole, President of the Chamber, stated this on Tuesday at the LCCI quarterly economic outlook press conference in Lagos.
He noted that the Federal Government spent N2.05tn on domestic debt servicing and N880bn in 2021 and that Nigeria’s total public debt as of December 31st, 2021 was N39.556tn, representing the total external and domestic debts of the Federal Government, 36 states, and the Federal Capital Territory.
He said, “With the total public debt stock to Gross Domestic Product of 22.47 per cent, as of December 31, 2021, the debt-to-GDP ratio remains within Nigeria’s self-imposed limit of 40 per cent. This ratio is prudent when compared to the 55 per cent limit advised by the World Bank and the International Monetary Fund for countries in Nigeria’s peer group, as well as the ECOWAS convergence ratio of 70 per cent.
“However, the Federal Government must be sensitive to, and mindful of the relatively high debt-to-revenue ratio of about 90 per cent in 2021. We must initiate measures to increase revenues without jeopardising the existence of the businesses that pay taxes to the government.”
He added, “We project that Nigeria’s debt stock and debt-servicing to revenue ratio will remain elevated in 2022. The Federal Government still plans to borrow an additional N1.6tn, while the 2022 debt target for domestic borrowing is N2.57tn.
“There is also a plan to borrow N2.57tn from foreign creditors, while N1.16tn is expected from multilateral/bilateral drawdowns. In total, the Federal Government plans to add N6.3tn new debts to the current debt stock, which would push the country’s total debt stock to N45.86tn by December 2022.”
According to the LCCI, going into the second quarter of 2022, the manufacturing sector will likely suffer some shocks from the rising cost of diesel, logistics, foreign exchange illiquidity, domestic inflationary pressure, weakening purchasing power, poor public infrastructure, and port-related challenges.
The likely development, it said, might continue to present some headwinds to the sector’s performance.
“Additionally, with the war in Ukraine aggravating disruptions to supply chains of raw materials like wheat, barley, soybeans, sunflower, and corn, the rising cost of production may not abate soon,” Olawale-Cole stated.
According to the chamber, the government needs to explore ways to resolve the lingering fuel supply crisis by increasing importation to meet growing demand which is putting pressure on diesel and fuel prices.
“It has also become imperative now that Nigeria needs to have reserves for these critical commodities which can be accessed to meet sudden crashes in supply.” the LCCI president added.