…hints on marginal improvement in GDP
Lagos Chamber of Commerce and Industry (LCCI) has disclosed that Nigeria’s debt profile is expected to hit N34 trillion by year-end from N31 trillion recorded in the second quarter (Q2) 2020.
The chamber emphasised that the N34 trillion debt would be an equivalent to 23 per cent of the country’s gross domestic product (GDP). It noted that the expected increase was due to Federal Government’s move to resort to fresh domestic and external borrowings to fix the country’s fiscal deficit in the wake of revised 2020 budget.
Similarly, the LCCI also predicted that the country would record marginal improvement in GDP growth performance in Q3, with the economy contracting. President of LCCI, Mrs. Toki Mabogunje, who gave the breakdown at a press briefing on the state of the economy in Lagos yesterday, said that the chamber and other members of the organised trade and private sector groups were deeply concerned about the country’s rising debt portfolio without corresponding impact on output growth and economic development.
She raised the alarm that the rising debt profile was a pointer to the management style of the country’s economy and revenue. She said: “According to the official statistics from the Debt Management Office (DMO), public debt stock grew by eight per cent to N31 trillion at the end of the second quarter, equivalent to 21 per cent of GDP.
“We note the increase in public debt stock was fuelled by fresh domestic and external borrowings required to plug the wider fiscal deficit in the revised 2020 budget given the impact of the pandemic on oil and non-oil sources of revenue. We also note the impact of recent exchange rate depreciation on the country’s level of external indebtedness.
“At the peak of the pandemic in the second quarter, the Federal Government received financial support worth $3.4 billion and $288.5 million from the International Monetary Fund (IMF) and African Development Bank (AfDB) respectively, while negotiations are also ongoing for a cumulative $1.8 billion credit support from the World Bank, AfDB (second tranche) and Islamic Development Bank.
“Adding this to prospective domestic issuances could possibly push the country’s public debt stock to around N34 trillion by year-end, equivalent to 23 per cent of GDP.” She added: “The growing level of the country’s debt is fast becoming unsustainable in the light of dwindling oil prices and production. Our position is reinforced by the uptrend in debt-service to revenue ratio from 60 per cent by year-end 2019 to 72 per cent as of May 2020.
“The high level of debt servicing continues to hinder robust investments in hard and soft infrastructures, which are key to stimulating productivity and improving living standards.” Speaking on the country’s GDP declining growth, the LCCI president traced the sharp decline in the national output in Q2 to the recent economic trajectory in the country, especially the profound impact of COVID- 19 on the economy.
To her, the containment measures, including lockdown, curfew, interstate travel ban, closure of schools, businesses and airlines, imposed globally and domestically to slow the spread of the virus significantly, disrupted commercial and business activities.
Similarly, the renowned industrialist explained that the second quarter marked the peak of the coronavirus scourge and during the period, the economy was confronted with multifaceted challenges, including weak oil price and production, huge stockpiles of unsold crude, weak export demand, foreign exchange scarcity, external pressure, high food prices, revenue shocks, budget disruption and portfolio investment outflows.
“The chamber notes the weak performance of the economy at sectorial level, particularly among key sectors with potentials to drive economic diversification. Our analysis of the numbers shows 19 sectors contracted, 14 are in recession, 11 sectors expanded, and two sectors had moderation in growth. We also note with concern that some sectors that grew in the first quarter plunged into contraction in the second quarter, while some others maintained their position in the recessionary territory.
“The Lagos chamber anticipates a marginal improvement in GDP growth performance in the third quarter considering the declining trend in the rate of confirmed cases of the pandemic, relaxation of various containment measures and increasing tempo of economic activities.”
On recession, the LCCI president said: “In Q3, are we likely going into recession. In all probability, we are likely to go into another contraction. And once we go into contraction, that means that we are technically in recession. “But our feeling is that the contraction in Q3 is not likely to be as severe as what we experienced in Q2. Because in Q2, all the challenges of COVID-19, lockdown, movement restrictions were more pronounced.
And a lot of these things have been relaxed. We expect a better performance in Q3.” Reacting to the various interventions of the fiscal and monetary sides of the authorities in mitigating the adverse impact of the pandemic on economic and business environment, Mabogunje said: “We recognise in particular the Nigerian Economic Sustainability Plan, which contains a N2.3 trillion stimulus package, equivalent to 1.5 per cent of GDP. We commend the Federal Government for the implementation of N75 billion Micro, Small and Medium Enterprises’ (MSMEs) Survival Fund and Support Initiative.
“We believe the scheme will help micro and small businesses in sectors severely affected by the pandemic in meeting their payroll obligations and would also help to protect jobs in the MSME space. “While we commend policymakers for their interventions in reflating the economy and supporting businesses, we urge that special attention be given to sectors severely impacted by the pandemic.”
She, however, stressed that the federal and state governments needed to expeditiously redirect attention to these sectors, including aviation, hospitality, entertainment, and manufacturing, stressing that this has become necessary to protect jobs, preserve investments and provide the much-needed liquidity required to revive these sectors.
On inflation, the LCCI boss said that continuous inflation had serious implications for businesses regarding production cost, investment real return rate and overall economic performance. She pointed out that the chamber expected inflation to sustain its upward trajectory for the rest of the year. Mabogunje said: “The major drivers of inflation are structural factors, which are beyond the purview and control of monetary authorities.
“The combination of food supply shocks, foreign exchange restrictions on food and fertilizer imports, higher energy costs – electricity and petrol – exchange rate adjustment, poor infrastructure and insecurity in major food-producing states would pressurize domestic price level in the near term. “We note the adverse implications of rising inflation for households, businesses, investors and the economy at large.
“The Lagos Chamber calls on the fiscal and monetary authorities to synergise in order to moderate domestic prices to a level conducive for sustainable and inclusive economic growth.”