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FG’s $30bn Loan: Private Sector Groups Highlights Future Risks

…Risks a full blown debt crisis — LCCI

…Debt servicing ration to worsen — MAN

…Complete financial recklessness — Highcap Securities boss

…Debt ration further deteriorates — FSL Securities

The Lagos Chamber of Commerce and Industry, LCCI and the Manufacturers Association of Nigeria (MAN), have faulted the moves by the Federal Government to raise fresh foreign loan amounting to $30 billion.

Reacting to the President Mohammadu Buhari’s loan request already placed before the National Assembly for approval, Director General of LCCI, Mr. Muda Yusuf, said the growing national debt is a cause for concern as the debt profile since inception of the present government has ballooned from N12.6 trillion in 2015 to N25.7 trillion in as at second quarter of 2019, an increase of 104 per cent.

“There is also the bigger worry about the capacity to service the debt.    For instance, the debt service provision in the 2019 budget was a whooping N2 trillion; whereas the total capital budget was N2.9 trillion; this implies that the debt service commitment was 70 percent of capital budget allocation.

“In the 2020 budget, debt service commitment and recurrent spending are beginning to crowd out capital expenditure.    This trajectory is not consistent with our national aspiration to build infrastructure and a competitive economy.    Debt service of N2.45 trillion is more than the capital budget of N2.14 trillion in 2020 budget.    That is 114 percent 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.

“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 sand the cost of governance.    The ballooning recurrent expenditure, in the face of declining revenue is a cause for concern.”

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Commenting on the loan request the Director General of MAN, Mr. Segun Kadiri, stated: “On the face of it and in my opinion, the 39 emergency projects in the Power, Agriculture, Transport & Mining sectors of the Nigerian economy alluded to by Mr. President should redress some of our infrastructure and sectoral performance/linkage deficits. To this extent, the projects are needful and their successful completion would boost the productive capacity of the Nigerian economy.”

However, he added: The rising debt profile of Nigeria continues to be a cause for concern, especially the capacity of Government to effectively service it and at the same time, meet the bursting needs and aspiration of the citizenry going forward.

“Already, our budget projection for 2020 anticipates a debt service sum of N2.45trillion, an amount higher than the N2.14 trillion earmarked for capital expenditure.    Also, our total external debt stands at $27.16 billion, while Domestic debt has climbed to $56.72 billion.    Nigeria’s debt stock increased by 3.11 percent from $81.27 billion recorded in the first quarter of 2019 to $83.88 billion (N25.70 trillion) at the end of June 2019. This is almost 13 percent increase year-on-year from the $73.21 billion at the end of June 2018. And even though our debt-to-Gross Domestic Product (GDP) ratio, which currently stands at 28 per cent, is still below the average in Africa, our revenue-to-GDP ratio remains low” he lamented.

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Commenting on the loan request, Mr.   David Adonri, Managing Director/CEO, Highcap Securities and Investment, described the plan as a complete financial recklessness and a calculated attempt to mortgage the future of the country and throw the nation back into another debt crisis.

“It is very dangerous move; it’s unwarranted. In fact, it’s like over trading.

It may be difficult to repay and then we would go back to the debt crisis, which former president, Olusegun Obasanjo and Ngozi Oknojo-Iweala rescued us from,” he said.

“The federal government should not establish a big government that will use its own money to finance its development activities. The world, today,  has gone beyond that. The engine room of any economy is organized around the private sector.”

“Instead of the  government taking it upon itself to undertake those economic and commercial ventures,  they should look for a way of coming up with appropriate policies and incentives to encourage the private sector to handle all those economic and commercial development projects.”

Reacting as well, Head of Research and Investment, FSL Securities Limited, Mr. Victor Chiazor  said: “The idea of borrowing $30 billion for critical infrastructure projects remains a laudable one but we have to look beyond the reasons for the borrowing and look at the country’s ability to pay back this loan without crippling the economy.

“Despite the country decent Debt to GDP ratio, its debt service to revenue ratio remains a ticking time bomb which may explode in our faces if not properly managed. At a debt service to actual revenue ratio of above 60 percent, a further increase to this ratio will leave very little or no resources for the government to use for other recurrent expenditure and other capital projects.

! Vanguard


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