The Lagos Chamber of Commerce and Industry (LCCI) has said that Nigeria should consider using equity financing as an exclusive way of funding budget deficits.
The chamber, speaking on the proposed 2023 Federal Government budget said the county’s approach should not be to continue issuing only debt, especially with the increasingly unbearable burden of interest payments that exposes our fiscal vulnerability.
“We are of the view that while nothing is wrong with the N10.78 trillion deficit, everything is wrong with the plan to issue N10.57 trillion (N8.8 trillion in new commercial loans and N1.77 trillion drawdown on bilateral and multilateral loans) new loans to finance the deficit, at a time that we are already placed on the watchlists of some of our foreign bondholders, and the world is still trying to process our president’s well-publicized call for debt cancelation at the last United Nations General Assembly.
2023 Budget: Why Nigeria Should Finance Budget Deficit With Equity – LCCI
“It is the exclusive use of debt to finance deficits that got us into the situation where we cannot keep the revenue we are earning today, as we use the bulk of our revenue to settle interest payments, and it is increasingly not enough to cover the interest payments. In the 2022 year-to-April, the interest payments were more than the revenue, and it is most unlikely that the revenue will be more than interest payments in the full-year 2022 or even in 2023.
“It is comforting that the 2023 budget is still at the proposal stage. It behooves all well-meaning stakeholders to make constructive inputs to the Presidency and the National Assembly now. Can we consider more efficient alternatives to new borrowings? Can we issue equity to finance the deficit instead of using debt?
Can we break from the path in which the federal government only approaches the debt markets at home and abroad and never approaches the equity market at home or abroad? Investors invest in debt. But they also invest in equity.
“Massive equity financing is the choice we should all urge the federal government to consider now. Nigeria should henceforth use equity financing as an exclusive way of funding budget deficits.
If we embrace equity financing, we do not have to make huge interest payments, and we can use some of the proceeds of our equity issuance to pay some of the down debt, make the fiscal situation more sustainable and rekindle much-needed confidence in our economic and fiscal resilience”.