LCCI cautions FG on rising debt …Laments high opportunity cost of debt services to economy

 LCCI cautions FG on rising debt

.Laments high opportunity cost of debt services to economy

. .Says debt service as percentage of revenue is 30.7% in 2019 budget

By Udeme Clement 

The Lagos Chamber of Commerce and Industry, LCCI, has identified rising debt as one of the challenges facing Nigeria’s economy at the moment.

The Director General of LCCI, Mr.  Muda Yusuf, made this known while giving a review of Nigeria’s economy under the administration of President Muhammadu Buhari in the last four years.

He explained, “In 2019 budget, debt service provision was N2.14 trillion; capital expenditure provision was N2.9 trillion and estimated revenue for the Federal Government was N6.97 trillion.

“This implies that debt service as a percentage of revenue was 30.7percent and debt service as a percentage of capital budget was 73.8percent.

“This raises the critical issue of sustainability of current debt profile”.

He analysed, “The National Debt grew from N12.6 trillion or US$65.4 billion in 2015 to N24.3 trillion or $79.4 billion in 2018.

“This represents an increase of 93percent; an estimated 15percent of these are owed by the states.

“It underscores high opportunity cost of debt servicing to the economy. Besides, the debt profile has profound crowding out effect on the private sector”.

According to him, “While banking sector credit to government has been increasing over the past few years, banking credit to the private sector has been on the decline”.

The LCCI DG pointed out, “Investments in treasury bills and government bonds have become more attractive than investments in real sector of the economy, such as manufacturing, agriculture and solid minerals. Even the financial institutions would rather invest in treasury bills and bonds rather than lending money to entrepreneurs”.

His words, “The dynamics of debt market has become a constraining factor on the financial intermediation role of the banking industry.

“This is a scenario that is detrimental to wealth creation and employment generation in the nation’s economy”.

He enthused, “The good news, however, is that the Central Bank of Nigeria, CBN, at its last MPC meeting resolved to take steps, to reduce the access of banks to investments in government debt instruments.  This is a welcome development for which the CBN should be commended”.