By Onome Amuge.
Among the many dangers perceived by analysts to be threatening the stability of Nigeria’s economy is the government’s increasing dependence on internal and external borrowings to finance its operations and the consequent debt burden and adverse impact on revenue.
Recent data released by the Debt Management Office (DMO) puts Nigeria’s public debt at N49.85 trillion as of end-march 2023 compared to N46.25 trillion in the same period of 2022. The growth is reflected in both the domestic and external debts as the external debt stock rose to N19.64 trillion in the first quarter of 2023 from N18.70 trillion in Q1 2022,while domestic debt stock surged to N30.21 trillion as of the end of march 2023 from N27.55 trillion in the first quarter of 2022.
With the Nigerian debt stock soaring to record levels and the government seemingly at its wits’ end to address the consequential debt servicing cost, the Lagos Chamber of Commerce and Industry (LCCI) has called on the new administration to explore equity financing rather than depend on the N22.72 trillion Ways and Means securitisation,in order to increase revenue and lessen the propensity to borrow.
The LCCI in its mid-year economic review & outlook for 2023,noted that ways and means financing is expensive, non-transparent, distortionary to market interest rates, and inflationary compared with traditional financing instruments. The chamber also frowned at the disregard of due process to restructure the ways and means advances.
The Chamber advised the government to consider financial avenues such as opening equity opportunities, offloading/selling off some of its real estate holdings and moribund assets, and also intensify its effort to deal with insecurity, oil theft, and vandalism, as well as block all revenue leakages in government institutions.
It noted that if the government had done this earlier, the country’s debt stock would have been very limited.
The LCCI report also called on the government to ensure transparent pricing mechanisms in the downstream sector by granting all importers of petroleum products, including the Nigerian National Petroleum Company Limited (NNPCL),equal access to the foreign exchange market.
This, it explained, would eliminate any form of exploitation or unfair advantage and create competition which is needed to boost the economic value of the sector.
Sharing a similar sentiment, Ayo Teriba, chief executive officer at Economic Associates, advised the President Bola Tinubu administration to unbundle the Nigerian National Petroleum Company Limited (NNPCL) and the Central Bank of Nigeria (CBN) to achieve price stability in Africa’s largest economy.
Teriba stated this during the 2023 LCCI mid-year economy review and outlook seminar held recently in Lagos.
Teriba, in his presentation, argued that to ensure a successful reform of the downstream sector and liberalise prices, the government needs to break monopoly parts, including breaking the monopoly power of the NNPCL and ensure that prices are cost-reflective so that suppliers can easily enter to compete with the government.
According to the highly experienced economist, it was such competition that enabled consumers to benefit from the reforms in the telecommunication sector. He lamented that such competition cannot be seen in the downstream of the petroleum sector where the NNPCL is a virtual monopolist.
“My suggestion is that you should unbundle NNPCL to separate the upstream exploration and production operations from the mid-stream refinery operations and also separate the downstream operations. Put them under the oversight of functionary separate entities,” he said.
Teriba also pointed out that adjusting prices without institutional reforms will not yield the desired economic development in the country, and the same situation applies to the unification of the exchange rate.
“If you want the country to benefit from the reform of the foreign exchange market, you will need to do institutional reforms that will ensure transparency and competition,” he suggested.
The economic analyst noted that one of the problems with the CBN and its operations in the FX market since 2015 was the tendency to favour banks over other players in the market,hence the implementation of the naira unification reform by the current administration.
Teriba opined that President Tinubu is well meaning in removing the petroleum subsidy as well as the floating of the Naira but hadn’t paid much attention to analysts and industry experts on how exactly to implement the reforms.
Citing the latest inflation report by the National Bureau of Statistics (NBS), he noted that the two policies have pushed up the country’s inflation rate to its highest in nearly 18 years at 24.08 per cent in July 2023 from 22.79 per cent in June.
Teriba also emphasised that the policies’ pronouncements were embarked on without any rigorous diagnosis of the economy to deal with the fallouts from the policies, bringing untold hardship on the citizens.
“We should spend some time debating how best to carry out reforms and identify, in particular,the gainers and losers and measure the extent of likely losses and make provisions upfront for mitigating losses,” he said.
Also speaking at the event, Chinwe Egwim, chief economist at Coronation Merchant Bank projected the country’s inflation rate to rise as high as 27.6 per cent in the second half of the year.
According to Egwim, the translation effect of cost-push inflation which is visible in domestic prices is still weighing heavily on businesses expenses as well as household wallets.
The chief economist noted that increasing the monetary policy rate alone is not enough to tame the persistently high inflation as there is a crucial need for the government to intensify its support and investments in critical sectors such as agriculture, power generation, telecommunication, education and skills development.
She added that strengthening investments in infrastructure would cushion production costs for businesses,expand market access,encourage foreign investments and foster an environment for economic growth.
