The Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, has stated that equity financing is the way out of Nigeria’s debt.
He made this known while proposing an alternative to Nigeria’s cravings for debt financing. which is about to double after Senate approved President Muhammadu Buhari’s $22.7 billion loan request.
Yusuf suggested that the Nigerian government should draft policies that would attract domestic and foreign private sectors and encourage them to part with capital for equity. He said this would help with infrastructure financing. Nairametrics had reported that President Buhari requested to borrow $22.7 billion in order to fund critical infrastructure projects under the 2016–2018 External Borrowing Plan.
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Although last year December, the President presented the loan request of $29.96 billion, it was reduced to $22.7 billion, with claims that the 8th National Assembly had already approved about $6 billion out of the money. Already, Nigeria has a debt level of about N26.22 trillion.
Speaking on the alternative to rescue Nigeria from more loan requests, Yusuf said, “The growing national debt is a cause for concern as the debt profile grew from N12.6 trillion in 2015 to N26.2 trillion in third quarter 2019, an increase of 108%. An additional $22.7 billion borrowing would bring the total debt stock to $108 billion, although 15% of this are debts owed by the state governments.
“The capacity to service the current stock of debt raises serious sustainability concerns. For instance, the debt service provision in the 2019 budget was a whooping N2 trillion; whereas the total capital budget was N2.9 trillion; this implies that the debt service commitment was 70% of capital budget allocation. The debt to revenue ratio was about 30% which is also on the high side. In the 2020 budget, the total revenue could barely cover debt service commitment and recurrent spending.” Yusuf said in a Vanguard report.
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He further explained that “The opportunity cost of high debt service commitment for the economy and citizens is very high. There is also the exchange rate risk inherent in the exposure to mounting foreign debt which we need to worry about. As the currency depreciates, the burden of servicing foreign debt would intensify. This is a major problem with increasing the stock of foreign debt.”
“All of these underscore the imperative of appropriate policy choices to attract equity domestic and foreign private-sector capital for infrastructure financing. The government needs to look beyond tax credit in its quest for complementary funding sources for infrastructure. We should be looking more in the direction of equity financing. But for this to happen, the policy and regulatory environment must be right,” Yusuf added.