The Lagos Chamber of Commerce and Industry (LCCI) has described as troubling President Muhammadu Buhari’s request to the National Assembly for approval to borrow additional $30 billion.
The Director General of the chamber, Mr. Muda Yusuf who made the position of LCCI known in a statement in Lagos on Sunday said that the growing national debt was a cause for concern as the debt profile grew from N12.6 trillion in 2015 to N25.7 trillion in 2019 second quarter, an increase of 104%.
Yusuf noted that there was also the bigger worry about the capacity to service the debt adding that for instance, the debt service provision in the 2019 budget was a whooping N2 trillion; whereas the total capital budget was N2.9 trillion which implied that the debt service commitment was 70% of capital budget allocation.
He posited that debt to revenue ratio was about 30%, which according to him was also on the high side.
The DG observed that in the 2020 budget, debt service commitment and recurrent spending were beginning to crowd out capital expenditure noting that this trajectory was not consistent with the national aspiration to build infrastructure and a competitive economy.
According to him, “Debt service of N2.45 trillion is more than the capital budget of N2.14 trillion in 2020 budget. That is 114% of capital budget. It is against this background that the new request for $30 billion is troubling. Care should be taken to avoid a full blown debt crisis.
“The opportunity cost of high debt service commitment for the economy and citizens is very high. There is also the exchange rate risk inherent in the exposure to mounting foreign debt which we need to worry about. As the currency depreciates, the burden of servicing foreign debt would intensify. This is a major problem with increasing the stock of foreign debt.
“This underlines the need for appropriate policy choices to attract domestic and foreign private sector capital for infrastructure financing. The government needs to look beyond tax credit in its quest for more complimentary funding sources for infrastructure. We should be looking more in the direction of equity financing. But for this to happen, the policy and regulatory environment must be right.
“It is also critical to review the spending structure of government and the cost of governance. The ballooning recurrent expenditure, in the face of declining revenue is a cause for concern.”
Yusuf therefore harped on the need to clarify place of the new loan request in relation to the 2020 budget and the 2020 -2022 medium term expenditure framework even as he cautioned that borrowing should strictly be in line with section 41 of the Fiscal Responsibility Act which stipulates that ‘Government at all tiers shall only borrow for capital expenditure and human development, provided that, such borrowing shall be on concessional terms with low interest rate and with a reasonable long amortization period’.
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