LCCI STATEMENT ON FG’S FRESH $2.2 BILLION EXTERNAL BORROWING PLAN
The intention of the Federal Government to borrow a fresh external loan of $2.2 billion and presently seeking the approval of the National Assembly has caused some stirs in the business community. The concerns are driven by the weak economic fundamentals we see in the economy today and the lack of understanding of how we intend to navigate through these challenges to a better economy in the near term. With an estimated debt-to-GDP ratio of above 50%, our debt servicing expenses set to swallow our capital expenditure, and Nigeria owing about $17billion and the 3rd highest debtor to the International Development Agency (IDA). The LCCI is taking the responsibility to once again warn about imminent debt sustainability issues and how that may further weaken the state of critical infrastructure in the country.
The Chamber has always advised against solely using debt financing without considering other options to fund budget deficits. A critical perspective of further borrowing is the risk to losing steam on infrastructure financing as debt servicing alone may rise above what is set aside for capital expenditure in the 2025 federal budget. Another concern is the exposure to the external currency shocks that may result from the depreciation of the Naira against the Dollar in the course of servicing these accumulated debts. The Central Bank has continued to struggle with boosting supply in the FOREX market to strengthen the naira but to no avail yet. With all of these concerns, the government’s borrowing appetite need to be keenly managed.
The Chamber hereby recommends that:
- The government should ensure transparency and accountability in deploying the borrowed funds. The funding of critical business-supporting infrastructure like electricity supply, security for food production and logistics, and enablers manufacturing should be of utmost importance.
- Beyond borrowing, the Federal Government should intensify efforts to expand the non-oil revenue base through tax reforms, improved compliance, and the promotion of export-driven sectors like agriculture and manufacturing.
- Urgent steps are required to stabilize the naira and address the structural issues in the foreign exchange market to reduce the negative impact of external borrowing.
- Greater reliance on PPPs for infrastructure development can reduce the pressure on public borrowing while encouraging private sector participation and efficiency.
The LCCI urges the Federal Government and the National Assembly to carefully evaluate the long-term implications of our current debt status and thread cautiously on the path of fiscal prudence, project accountability, monitoring and evaluating capital projects to ensure the delivery of funded projects.
Dr. Chinyere Almona, FCA
Director General
Lagos Chamber of Commerce and Industry
20th November 2024
