LCCI: The Non-Interest Debt Debate for Budget 2022, Rethinking Public Policy

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Sunday, January 23, 2022 / 7.20 AM / Ottoabasi Abasiekong for WebTV/Header Image Credit: LCCI

 

Nigeria's leading trade business group, the Lagos Chamber of Commerce and Industry (LCCI), recently hosted stakeholders at a conference assessing the Federal Government's 2022 Budget and how to chart a pathway to effective fiscal management.

 

It was an opportunity to debate the concept of  "Non-Interest Debt" as an alternative approach to the present fiscal policy management framework for achieving economic stability. In his opening remarks, the President of the LCCI, Dr. Michael Olawale Cole, reiterated the Chamber's concern on the issues of debt cost in Nigeria.  He believed there was a need to reassess the country's debt sources to borrow at lower rates or access larger zero-interest loans.

 

In his discussion, Mr. Olufemi Awoyemi, FCA the Chairman, Proshare, noted that the budget was a clever work of fiction that represented the nation's aspirations but not its practical programme to meet socioeconomic objectives. He said that what was critical in improving governance in the country was a clear understanding of the role of a budget in statecraft.

 

He raised three fundamental issues that the government should consider: rethinking governance, increasing non-tax revenue, and issuing the correct type of zero-interest debt.

 

Responding to the points made earlier by the private sector, the Director-General of the Budget Office of the Federation, Mr. Ben Akabueze, on cheaper options for borrowing, said he did not hear much in terms of the alternatives for the government.

 

He acknowledged the concerns on the recurrent expenditure for the 2022 budget. Still, he stated that there were vital issues to highlight, including the N4.1trn earmarked for personnel costs covering 5m public servants.

 

Akabueze stressed that N2.7m is spent annually per civil servant, and there was no room to reduce the cost now and even in the future, including expenses on the military and police.

 

He made a strong case for revenue growth to address fiscal issues, to achieve budget comprehensiveness.

 

On the argument that the 2022 budget did not make provision for reforms, the DG, Budget Office disagreed with the panelists, pointing out that the decision to cater for fuel subsidy till June 2022  aligned with the reforms in the oil and gas sector.

 

"The government supports the power sector reforms and the plans to adopt the cost-reflective tariff regime. We appreciate the private sector interventions but would like more pragmatic policy options," Akabueze added.

 

In his submission, Dr. Ayo Teriba CEO, of Economic Associates, cautioned the Federal Government should kindly not dismiss the suggestion by the private sector that government should explore non-interest alternative borrowing.  He also advised the government not to treat the issue of non-interest debt as a mirage.

 

He brought into context the incident in 2020, where the debt interest cost was more than the federal government's revenue. Teriba decried that in 2021 about  N4.2trn out of 5.5trn was deployed as debt servicing cost, which he attributed to the nation's failure in debt management.

 

The economist noted that Nigeria issues the most expensive type of borrowing instruments both home and abroad: junk bonds. He stressed the need for the country to improve the quality of the bonds it issues. According to him, Saudi Arabia sold $50bn worth of debt through Sukuk last year.

 

He said the Saudi-issued instruments were rated investment grade by Fitch Ratings, and the government is not paying a dime in interest rate.

 

He said profits on the instrument would be yielded to the underlying assets, a financial return that reduces risks for the kingdom. The scholar believed that it was time for Nigeria to take interest cuts from the budget to bring significant relief to the government.

 

Mr. Kunle Elebute, the Chairman, KPMG Africa, who moderated the session, tasked experts and economists like Dr. Ayo Teriba and Mr. Olufemi Awoyemi on developing a blueprint for the Minister of Finance, Budget and National Planning and DG, Budget Office on how the Federal Government could achieve a "Non-Interest Debt" environment in a pragmatic way.

 

Elebute said it was important not to assume that Nigeria has underlying assets that could back up a non-interest debt issuance, which requires a thorough assessment.

 

He called on the private sector to play its role in supporting the government and its policy objectives with feasible solutions and ideas that could move the economy forward.




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