N22.38 trillion debt: LCCI cautions FG on excessive borrowing …Warns against debt over-hang in the economy

N22.38 trillion debt: LCCI cautions FG on excessive borrowing

.Warns against debt over-hang in the economy

By Udeme Clement

The Lagos Chamber of Commerce and Industry, LCCI, has expressed concern over the country’s debt profile estimated at over N22.38 trillion, which is equivalent to $73.21 billion, cautioning the Federal Government on excessive borrowing capable of causing debt over-hang in the economy.

The Director General of LCCI, Mr. Muda Yusuf, said this in his economy review of 2018 and outlook for 2019.

He said,  “The Debt Management Office, DMO, put the nation’s total debt stock for Federal, FCT and States at N22.38 trillion ($73.21 billion) as at June 30, 2018. We are concerned about the fast-growing public debt profile and the country’s fiscal sustainability in the medium term”.

He added, “Debt service to revenue ratio of31 percent and debt service to capital expenditure ratio of 75 percent in 2019 budget proposal are on the high side, with economic implication on the country’s ability to deliver infrastructure investments.”

The LCCI DG stated further, “The Monetary Policy Committee, MPC, of the Central Bank of Nigeria, CBN,  in its 2018 meetings consistently left the Monetary Policy Rate,(MPR ) and other parameters unchanged as follows; MPR was left unchanged at 14percent; Cash Reserve Ratio, CRR, at 22.5percent and Liquidity Ratio at 30.0percent.

“The MPC cited factors, such as slow recovery in the economy, rising inflation rate, late implementation of 2018 budget, rising level of non-performing loans in the banking system, weakening demand and consumer spending and expected minimum wage increase as reasons for retaining a tightening monetary policy stand.”

His words, “Access to funds remains a big issue for many domestic investors. With commercial bank lending rate of between 20-35 percent, the private sector, especially SMEs could not successfully access funds for their businesses. We note the efforts of government through CBN and Bank of Industry, BoI, for extension of intervention funds to business owners, particularly SMEs.  However, there are still pockets of issues with access to funds.

“The CBN consistently intervened in foreign exchange market in 2018. This put pressure on the country’s external reserves, which dropped from $47.5 billion in July 2018 to $43 billion, as at 20th December 2018. The increasing pressures on the nation’s currency may not be unconnected with the sell-off in fixed income securities and equities by foreign investors, resulting from the rising rates in advanced economies. However, the reserves are still robust enough to support the nation’s international trade transactions at this time”.

On inflation rate, he explained, “After 18 consecutive months of decline, inflation rate began to rise in August 2018 with headline inflation of 11.26 percent in October 2018 compared to 15.13 percent  in January 2018 and 18.7 percent in January 2017. Following the diminished high base effect in August 2018, the country is likely to see headline inflation trending up in the early part of 2019”.