June 18, 2024

NIGERIA Global News

Companies May Suffer As Nigeria’s Debt Is Set To Hit N45tn in Q4 2022, LCCI Predicts The Effect Of Russian-Ukraine War on Nigerian Economy

Facebook
Twitter
WhatsApp
Telegram
Email

The Lagos chamber of commerce and industry has warned the government to be more sensitive and mindful of the threatening high debt-to-revenue ratio, as it has been predicted that Nigeria’s total debt may increase up to N45tn in the last quarter of the year 2022.

 

Speaking at a press briefing on the state of the nation, the president, LCCI, Mr. Micheal Olawale Cole, disclosed that the Federal government’s plan to borrow an additional N1.6 trillion will undoubtedly increase the country’s debt stock, while the 2022 debt benchmark for domestic borrowing was pinned at N2.57 trillion.

 

Mr. Micheal Olawale Cole stressed that Nigeria’s total debt as of December 2021 was N35.556tn after the Federal government spent N2.05tn on domestic debt servicing and N880bn. This represented the total external domestic debts of the Federal government, 36 states, and the federal capital territory.

 

The LCCI president said, “With the total public debt stock to Gross Domestic Product of 22.47 percent, as of December 31, 2021, the debt-to-GDP ratio remains within Nigeria’s self-imposed limit of 40 percent. This ratio is prudent when compared to the 55 percent limit advised by the world bank and the international monetary fund for countries in Nigeria’s peer group, as well as the ECOWAS convergence ratio of 70 percent.

 

“However the Federal government must be sensitive to, and mindful of the relatively high debt-to-revenue ratio of about 90 percent in 2021. We must initiate measures to increase revenues without jeopardizing the existence of the businesses that pay tax to the government.”

 

Mr. Micheal Olawale Cole further buttressed his point indicating that Nigeria’s debt and debt servicing in juxtaposition to the total revenue will be higher during the year 2022.

 

He said “we project that Nigeria’s debt stock and debt-servicing revenue ratio will remain elevated in 2022. The Federal government still plans to borrow an additional N1.6tn, while the 2022 debt target for domestic borrowing is N2.57tn.

 

“There’s also a plan to borrow N2.57tn from foreign creditors, while N1.16tn is expected from multilateral/bilateral drawdown. In total, the Federal government plans to add N6.3tn new debts to the current debt stock, which will push the country’s total debt stock to N45.86tn by December 2022.”

 

The Lagos chamber of commerce and industry boss also expressed that going into the next quarter of 2022, the likelihood and vulnerability of manufacturing companies to suffer shocks from increasing cost of diesel, logistics, foreign exchange illiquidity, and others due to the consequential effect of the Ukraine war which has maliciously altered the flow of supply chains in the energy and agriculture market.

 

It’s worthy of note that Russia is the world’s second-highest exporter of crude oil after Saudi Arabia. In 2019, 48 countries bought Russian crude oil worth $123bn. On a percentage scale, it’s safe to say Russia was responsible for an 11% share of the world’s total oil in circulation. Prices of oil have since surged following the western sanctions on Russian oil due to their baseless invasion of the Ukrainian Capital.

 

Similarly, in 2021, either the Russian Federal or Ukraine (or both) ranked among the top 3 global exporters of wheat, maize, rapeseed, sunflower seeds, and sunflower oil, while the Russian Federation is also the world’s top exporter of nitrogen fertilizers and the second leading supplier of potassium fertilizers.

 

Hence it is no surprise why the war between the two productive countries has affected the Nigerian economy due to the presence of inflation on largely demanded products like diesel, fuel, and agricultural products.

 

Furthermore, the LCCI also warned about the reduction in the production of goods for manufacturers in Nigeria as they try to adapt to the bottlenecks created by the Russian-Ukraine conflicts. Suggesting that should the war continue, There would be low productivity from Nigerian manufacturers as the scarcity of raw materials will stimulate a more unbearable cost of production, also the inflation of oil will impact operations.

 

Mr. Micheal Olawale Cole’s statement reads in part, “job losses are also very likely due to constrained production and disrupted supply chains and all of these will likely depress growth potential in Q2 2022.

 

“Going into the second quarter in 2022, the manufacturing sector will likely suffer some shocks from the rising costs of diesel, logistics, foreign exchange illiquidity, domestic inflationary pressure, weakening purchasing power, poor public infrastructure, and port related challenges.

 

“This may continue to present as headwinds to the sector’s performance. Additionally, with the war in Ukraine aggravating disruptions to supply chains of raw materials like wheat, barley, soybeans, sunflower, and corn, the rising cost of production may not abate soon.”

 

There are more uncertainties surrounding the survival of Nigerian manufacturers as the LCCI boss indicated that the rising costs of raw materials will remain elevated due to the Ukraine war, food supply shocks, FX illiquidity, heightened insecurities in Nigeria and in major food-producing states would continue to amass pressure on consumer prices.

 

“We believe broad-based harmonization of fiscal and monetary policies towards addressing the identified structural constraints will significantly help moderate inflationary pressure in the short term.

 

“It has also become imperative now that Nigeria needs to have reserves for these critical commodities to meet sudden crashes in supply.

 

Tough times lie ahead for the Nigerian economy as the debt to revenue ratio is not only saddening and threatening to the whole manufacturing and consuming space, but the global economic crisis is also having its direct impact on the Nigerian market. It’s predicted that Nigeria will face a double challenge of a low revenue base and a huge infrastructure gap.

 

If manufacturing companies keep struggling with costs of production and maintenance, they will be forced to lay off some of their staff or leave the country for a less toxic economy. This would increase the level of unemployment and reduce the average standard of living in Nigeria. There’s much work needed to be done in terms of security, infrastructure, and debt servicing.

 

Related Articles
0 0 votes
Article Rating
Subscribe
Notify of
guest

0 Comments
Inline Feedbacks
View all comments