Nigeria Faces Serious Debt Sustainability Risk – LCCI
The Lagos Chamber of Commerce and Industry (LCCI) has expressed concerns that Nigeria faces serious fiscal sustainability risk over its national debt profile.
LCCI noted that the country’s debt-to-GDP ratio, which the government is using as a measure of debt sustainability, does not reflect underlying sustainability risks for the country.
President, Lagos Chamber of Commerce and Industry (LCCI), Mrs Toki Mabogunje said Nigeria’s largest contributors to GDP-agriculture and distributive trade have no significant contributions to revenue to support servicing of debt obligations.
According to her, while public debt stock accounted for some 22 per cent of nominal GDP as at end-December 2020, below the 56 per cent threshold recommended by the World Bank and the IMF for developing countries, official statistics points to Nigeria’s weak fiscal position with average debt costs to revenue ratio settling at 59.4 percent between 2015 and 2020.
“This portends serious medium-term fiscal sustainability risk given the country’s persistent revenue challenge. While we acknowledge the Federal Government’s drive in boosting revenue mobilization via the Strategic Revenue Growth Initiative (SRGI), it is even more important for state governments to be very innovative about revenue generation,” Mabogunje said.
She lamented that majority of Nigeria’s debts are not linked to assets or specific projects, pointing out that it is critical to create a national asset register, and have a coordinated mechanism in place for valuing and managing Nigerian assets.
Mabogunje berated government’s penchant for issuing new debt to redeem maturing ones, noting that it is not an optimal debt management strategy.
According to her it is critically important to replace existing debts with asset-linked securities to reduce debt cost, adding that this will ease the pressure of debt service on the budget.
On the impact of rising oil prices domestic energy prices, she reiterated the position of the chamber which states that total deregulation of downstream petroleum industry remains the most sustainable policy option for the sector.
“The philosophy should be for the government to put the legislative and commercial framework in the market and allow the market to operate itself.There is need to transition to market-driven environment through policy-backed legislative and commercial frameworks, thereby enabling the sustainability of the sector.
“Deregulation requires the creation of a competitive market environment and will guarantee the supply of products at commercial and market prices. It requires unrestricted and profitable investments in infrastructure, earning reasonable returns to investors. It requires strong regulator to enable transparency and fair competition among players, and not to regulate prices. This is very crucial in attracting patient capital into the oil sector, promoting efficiency in the administration and utilisation of petroleum resources, and ensuring healthy competition among industry players. It is important to expeditiously accelerate the passage of the Petroleum Industry Bill (PIB) as the delay has continued to worsen uncertainties in the sector,” Mabogunje said.
According to her, the argument of whether to retain or eliminate petrol subsidy is understandably a sensitive discourse given the plight of the average Nigerian.
She advised that deregulation should take place concurrently with renewed commitment to stimulation of private investment in petroleum refinery, accelerated investment in mass transit transportation systems across the country.
She also called for accelerated program on the use of auto gas to reduce dependence on PMS and diesel; promote bullish investment in the power sector to reduce dependence on alternative sources of energy, especially PMS and Diesel electricity generating plants.
She further stated that it is evident that petroleum subsidy is unsustainable given government’s lean financial resources. According to her subsidy payment has for long constituted a huge burden on public finances as it is characterised by enormous corruption and product diversion. She canvassed the need to eliminate subsidy payment to free up resources for investment in critical sectors of the economy.
“Additionally, we note the Federal Executive Council has approved the sum of $1.5 billion for the rehabilitation of the Port-Harcourt Refinery, with plans to revamp Warri and Kaduna refineries. While we appreciate government’s resolve in revamping these facilities, we do not consider the approval as economically and fiscally expedient given the fact that billions of dollars have been expended on turnaround maintenance over the years with no tangible results.
“The Chamber believes the refineries should be concessioned to private investors with government taking a minority stake. Such funds should be invested in critical infrastructural projects that would further stimulate economic development in the country”. A shift from a crude oil exporting country to crude oil full value realization through deliberate investment in domestic refining and refined products distribution creates the opportunity to transform the dynamics of the downstream sector from a net importer to a net exporter of refined petroleum products,” Mabogunje said.