By LAZARUS IBEABUCHI & NAOMI UZOR
LAGOS — The Lagos Chamber of Commerce and Industry, LCCI, said the country’s current debt profile was not sustainable, adding that the high cost of government borrowing was not healthy for the economy.

Speaking at its third quarter press conference on the economy by its President, Mr Goodie Ibru, the chamber said government was borrowing at a high cost of between 14-16 per cent which is one of the highest globally.

LCCI said:“This has reduced the attraction to lend to entrepreneurs; it is putting pressure on interest rates and increased the outflow of funds from the banking system to the government coffers. This scenario is clearly not healthy for the economy.”

Noting that the debt profile of the country is $44 billion as at June 2012, of which domestic debt is $38 billion and current debt service provision in the 2013 budget is N592 billion, the chamber said: “Current debt profile is not sustainable, taking into account that current debt service is about 20 per cent of total revenue of government.

“The use of the global benchmark of debt to GDP ratio would not be appropriate for the Nigerian economy because a major component of the GDP, which is agriculture, is not a revenue generating activity.  If this component is discounted, the ratio will be much higher than the set threshold.

“N1.54 trillion  earmarked for capital projects and N592 billion  for debt services in the 2013 budget raise issues of prioritisation of resource allocation.

“Payment of contractor arrears is often relegated when the issue of the nation’s debt is being discussed.  Settlement of contractor arrears is as important as debt securitisation .

Cost of borrowing too high

“Cost at which the government is borrowing is too high and creating distortions in the credit market.  Private sector is being crowded out when investment in treasury bills and government bonds are more attractive than putting money in fixed deposits or lending to enterprises.

“High returns on government securities compound the problem of liquidity in the banking system and impede financial intermediation.”

The chamber said that there was an urgent need, therefore, to moderate the growth of domestic debts and free resources for investors in the economy.

On the 2013 budget, the chamber noted that allocation to infrastructure development and some other critical sectors of the economy was grossly inadequate, adding that the government needs to do a lot more in the areas of power, the roads and agriculture.

It said: “It is important to also note that this allocation is a combination of both recurrent and capital, which implies that the capital content is even much lower. We note the 2.7 per cent reduction in recurrent expenditure from 71.43 per cent to 68.7 per cent; and the increase of 2.8 per cent in Capital budget, from 28.5 per cent to 31.3 per cent.

These adjustments are not profound enough to provide the needed infrastructure support to stimulate the economy.”

-Vanguard

Posted by admin on Oct 18 2012. Filed under Latest Politics. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry