The Lagos Chamber of Commerce and Industry (LCCI) said it is becoming increasingly worried over Nigeria’s debt profile and warned that the country may not achieve any meaningful development if the debt continues to rise.
LCCI president, Alhaji Remi Bello, explained that the chamber is profoundly concerned about the growing budgetary appropriation for debt servicing in the country, stressing that Nigeria’s debt has grown from N712billion in 2014 to N943billion in 2015.
Bello added that the situation is even more disturbing when compared to budgetary appropriation of N93.66bbillion for infrastructure and N633billion for capital projects in the country.
According to him, the high cost of running federal government’s businesses is responsible for the bulk of the debts, adding that there is no positive correlation between federal government’s borrowing and the nation’s developmental priorities.
“The relativity does not reflect our development priorities and the urgent need to fix the huge deficit in infrastructure. This also raises the concern about the growing domestic debt and the burden it imposes on the economy,” he said.
He pointed out that as a percentage of revenue, the debt service provision is over 25 per cent; percentage of infrastructure budget at 906 per cent; while percentage of capital budget stood at148 per cent.
“The trouble is that the bulk of the debts (mainly domestic) were incurred for recurrent spending and the high cost of running government business. They were not incurred for developmental purposes. This makes the servicing even more burdensome on the economy and the citizens,” Bello stressed.
He added: “We would like to caution once more to avoid relating debt to the re-based GDP in determining the borrowing the nation’s threshold. This is because a large component of the re-based GDP are not revenue generating. If the current trend of debt accumulation continues, it is only a matter of time for debt service provision to completely crowd-out capital expenditure in the budget.”
The LCCI president further noted that the 2015 budget is very significant, coming especially at a time when the economy is facing profound revenue shocks arising from the slump in the global oil price, maintaining that the budget is also important because it is coming in an election year and therefore has transitional significance.
“We note and commend the scenario approach to the budget adopted in the light of the volatility of the global oil price. The prevailing economic condition necessitates that the budget should be structured to ensure cost savings, optimal revenue generation, fiscal efficiency and curbing of fiscal leakages. The budget at this time should also seek to create an enabling environment and stimulate investments to ensure the diversification of the economy,” he added.
On oil price at $65 per barrel, he noted that the benchmark assumption of $65 per barrel proposed by the executive is too optimistic given the current reality of the global oil market
He said the fundamentals of supply and demand in the oil market cannot support this benchmark in the short to medium term, pointing out that currently, oil price is at less than $50 per barrel.
“The benchmark therefore should be brought close to current global oil market reality, somewhere between $40 -$45 per barrel. Ideally, the benchmark should be significantly below the actual price in other to create room for possible savings and adjustments for volatility shocks,” he advised.
He also noted the production benchmark of 2.278million barrels per day prescribed in the appropriation bill, saying that the assumption appears optimistic having regard to the persistent oil theft which had continued unabated in recent years.
According to him, the quantity of oil theft has been estimated at about 400,000 barrels per day and has led to divestment by the major oil companies and sluggish investment in exploration as a result of policy uncertainties and security concerns.
“In recent years oil output has ranged between 1.8million -2million barrels per day. The oil production benchmark should therefore be guided by this experience,” he said
He also noted that the biggest burden on government treasury in the country is the appropriation for petroleum subsidy, adding that in the 2015 budget, N200 billion was proposed as subsidy for PMS (petrol) and N971 billion in 2014 representing a decrease of about 80 per cent.
“We welcome this development. However, we note the provision of N91billion for kerosene subsidy in 2015. We submit that provision of this sum is difficult to justify. Besides the global oil price dropping to below $50 per barrel there is no longer any justification for budgetary provisions for petroleum products subsidy. We urge the National Assembly to take this into account in its deliberations on the 2015 appropriation bill. Times like these call for utmost prudence and curbing of leakages,” he added.
“This year is unique and significant in some ways. It is an election year and it is also a year when the economy will witness major adjustments driven by developments in the external sector. As in all situations there will be winners and losers. But clearly it is an opportunity to move the economy in the right and a more sustainable direction,” he stressed.