The Lagos Chamber of Commerce and Industry (LCCI) has urged the Federal Government to embrace equity financing as an exclusive way of funding its budget deficits.
The federal government plans to spend N21.8 trillion this year, with a projected revenue of N10.5 trillion, according to the budget signed last week by President Muhammadu Buhari, who will leave office in May.
That leaves a deficit of N11.3 trillion, which will be plugged largely by borrowing. The government said N7.04 trillion will be sourced from the domestic market and some N1.76 trillion will be borrowed from foreign sources while an additional N1.7 trillion will come from existing bilateral and multilateral facilities.
“Looking at the huge deficit to be financed by borrowing, can we consider more efficient alternatives to new borrowings? We do not have to make colossal interest payments if we embrace equity financing,” Michael Olawale-Cole, president of LCCI, said in a statement on Tuesday.
“Our approach should not be to continue issuing only debt, especially with the increasingly unbearable burden of interest payments that exposes our fiscal vulnerability.”
He said the government could use some of the proceeds of equity issuance to pay some of the debt, make the fiscal situation more sustainable and rekindle much-needed confidence in economic and fiscal resilience.
“Massive equity financing is the choice we should all urge the federal government to consider now,” he said.
Olawale-Cole said with 22 percent of projected revenues expected from oil-related sources and 78 percent from non-oil sources, there is a need to keep track of the funding and promotion of the non-oil sector for more output in 2023.
He recommended that the government can improve the performance of the 2023 budget by studying how the 2022 budget has performed.
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He said the government should look at what has worked well, what failed, and what must be corrected in the implementation of the 2023 budget.
Olawale-Cole added that governments at all levels must put actionable policies in place to address the high fuel and food costs. “The high inflation rate will continue to distort most of the budget assumptions and targets if not curtailed.”
According to the Debt Management Office (DMO), the country’s public debt stock increased by 11.4 percent to N44.06 trillion in the third quarter of last year from N39.56 trillion at the end of 2021.
Patience Oniha, director-general of DMO, said last week that the next administration would inherit a public debt of N77 trillion if the N23 trillion loans from the Central Bank of Nigeria are securitised.
“If securitisation is achieved, a brief breakdown of the estimated total public debt stock by May 2023 may comprise the current total public debt stock of N44.06 trillion; the Ways and Means Advances of N22.72 trillion currently under consideration by lawmakers,” she said.
The current administration said it allocated 80 percent (N5.2 trillion) of its income to service debt between January and November 2022, while the income generated was N6.5 trillion.
The LCCI president said the 80 percent is far above World Bank’s recommended 22.5 percent for low-income countries like Nigeria. “We must warn again that borrowing to fund subsidies, which is spending the money we do not have, is totally unsustainable.”
On the 2022 Finance Bill, which was recently passed by the National Assembly, and currently awaiting the President’s assent, the chamber cautioned the government on its plans to raise some taxes.
“On the path of caution, we urge the government to tread conservatively in raising tax rates, since there are new ways of rescuing some tax expenditures to add up to government revenue in 2023. Leaving rates at their levels will not lead to a loss of revenue,” it said.
It suggested the retention of the Tertiary Education Tax rate at 2.5 percent, particularly as it was increased from two percent to 2.5 percent about a year ago.
“At the proposed rate of three percent, Nigeria’s effective corporate income tax rate would rise to about 36 percent, which is one of the highest rates in the world, according to available research. We should also retain the 30 percent Company Income Tax for all oil and gas companies,” Olawale-Cole added.
