LCCI sees debt stock at N40tr, warns against borrowing abuse under amended FRA
The Lagos Chamber of Commerce and Industry (LCCI) has projected that Nigeria’s debt stock may hit N40 trillion by the end of the 2021 financial year, citing concerns about elevated debt-servicing to revenue ratio this year.
According to the Chamber, the low yield environment is expected to keep domestic borrowings elevated in the short term as it favours the Federal Government in mobilising funds at lower rates, just as the reality of new taxes, tariffs, and levies being imposed on consumers from this year becomes apparent.
With the new changes in the assented Finance Act 2021, the chamber warned that the amendment of the Fiscal Responsibility Act to enable government to borrow for “critical reforms of significant national impact” (which are not defined), may lead to abuse of definition of what is ‘significant national impact’.
The LCCI explained that its concerns are founded in the rising debt stock of the government and wondered what the levels may become when more room is created for more borrowing.
The president, LCCI, Asiwaju Olawale-Cole at its quarterly press conference on the state of the economy, projected a total debt stock within the range of N39 trillion and N40 trillion by year-end 2021.
He added that with projected borrowings of N4.893 trillion, N4.750 trillion, and N5.356 trillion in 2022, 2023, and 2024 respectively, debt sustainability concerns will remain elevated.
Also, the chamber expects headline inflation to remain elevated as the combination of food supply shocks, FX policies, higher energy costs, FX illiquidity, heightened insecurity in major food-producing states, would continue to mount pressure on domestic consumer prices.
“We believe a broad-based harmonisation of fiscal and monetary policies towards addressing the identified structural constraints will significantly help to moderate inflationary pressure in the medium term,” he advised.
He warned that inflation at 15.4 per cent as of November 2021 remains elevated and portends serious implications for various economic agents, including households, businesses and investors.
He said an inflationary environment erodes consumers’ real disposable income, weakens purchasing power, escalates production cost, worsens cost of living, dampens corporate profitability, and undermines investor confidence.
“The collaborative effort of the fiscal and monetary policymakers is required in addressing the structural constraints fuelling inflationary pressure.
Addressing the security crisis across the country is not only highly imperative but also very urgent,” he noted.
The LCCI boss further stated that economic activities are expected to ramp up to the pre-Covid-19 period in 2022, stressing that as a result of the trend, the Chamber expects growth to range between 2.5 per cent and four per cent.
He highlighted key economic activities to watch out for in 2022 to include the electioneering campaigns, supply chain disruptions, removal of fuel subsidies, and pressures on the Naira.
“While we see inflation moderating in 2022, we expect the CBN to remain focused on price stability because of the known effects of high double-digit inflation on the economy. However, external pressures could result in rate hikes. Fiscal resources may receive a boost in 2022 on the back of a recovery in oil revenue and expected earnings by NNPC as the PIA is implemented,” he said.
He recommended that to sustain the pace of recovery recorded in 2021 requires both fiscal and monetary policymakers to be well-coordinated in promoting growth-enhancing and confidence-building policies that would encourage private and foreign capital inflows into the economy.
He said the signing into law of the FGN 2022 Appropriation Bill is commendable as it paves way for an early implementation from 1st of January, 2022.