LCCI Urges Central Bank to Sustain Development Finance Interventions

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•Raises the alarm over Nigeria’s huge debt service cost

Dike Onwuamaeze

The Lagos Chamber of Commerce and Industry (LCCI) has advised the Central Bank of Nigeria (CBN) to sustain its development finance initiatives in 2022.

It also described the N4.20 trillion the federal government spent on debt service, against the N3.40 trillion it expended on capital projects as of November 2021, as a dangerous trend for the Nigerian economy.

The new president of the LCCI, Dr. Michael Olawale-Cole, said these yesterday, during a media briefing on the state of the economy.

He also urged the CBN to initiate gradual transition to a unified foreign exchange rate.

In addition, he called for an effective synchronisation of fiscal and monetary policies in order to improve Nigeria’s investment climate and attract sustainable foreign direct investments into the economy.

He advised the CBN to initiate gradual transition to a unified exchange rate regime, saying factors such as oil price and production, GDP growth, inflation rate, forex trends, private investment inflows, credit to the private sector, and domestic interest rates would be expected to influence monetary policy direction in the short to medium-term.

The LCCI president said the, “CBN, having adopted the NAFEX rate as the official rate, needs to initiate a gradual transition to a unified exchange rate system and allow for a market reflective exchange rate.

“The currency market is still beset with persisting liquidity challenges evidenced in the wide premium between the NAFEX and parallel market rates.

“To consolidate on the interventions earlier initiated, the CBN needs to roll out more friendly supply-side policies to boost liquidity in the market. This would help bolster investor confidence and attract foreign investment inflows into the economy.

“We expect the CBN to sustain its development finance efforts this year while also maintaining its stance on minimum Loan to Deposit Ratio (LDR) requirement. It is expected that credit flows will yield limited outcomes if the structural challenges stifling domestic productivity are unresolved. The CBN should sustain its policy of keeping interest rates low to enable investors to raise capital at cheaper rates.”

Commenting on the country’s debt service cost, Olawale-Cole said: “On the expenditure side, debt service gulped N4.20 trillion, while N3.40 trillion had been expended on capital (project) as of November 2021. We note that debt servicing gulped more than capital expenditure during the period under review.

“The Chamber is concerned with our debt costs. We need to re-assess our debt sources to borrow at low rates or access more zero-interest loans like the Sukuk.”

He added that, “the federal government spent N2.89 trillion on debt service between January 2021 and August 2021. This figure represents 74 percent of the total revenue of N3.93 trillion generated by the federal government within the same period, a development considered to be a dangerous trend for the economy.”

He projected that, “Nigeria’s debt stock and debt-servicing to revenue ratio will remain elevated in 2022. The low yield environment is expected to keep domestic borrowings elevated in the short term as it favours federal government in mobilising funds at lower rates.

“With projected borrowings of N4.893 trillion, N4.750 trillion, and N5.356 trillion in 2022, 2023, and 2024 respectively, debt sustainability concerns will remain elevated.”

He noted that a broad-based coordination of fiscal and monetary policies would be critical in achieving the twin objectives of output growth and price stability in the domestic economy.

Olawale-Cole also recommended that deliberate efforts should be made to make the business environment more conducive for micro, small and medium scale enterprises (MSMEs) and large corporates at the national, subnational, and local government levels are imperative.

He suggested that this could be achieved by addressing the structural bottlenecks and regulatory constraints contributing to the high cost of doing business.

“A supportive and conducive investment environment is critical in facilitating private sector involvement in the economic recovery process. The government should initiate moves towards having cost-reflective tariff in the power sector as this will attract the needed investment to boost power supply.

“There should be clarity in government’s policy direction by ensuring consistency in economic policies. Policy consistency is imperative for long-term investment planning and business projections.”

He added that “holistic and dynamic review of the security architecture to address the seemingly worsening security situation in the country.”