By Yinka Kolawole
THE Lagos Chamber of Commerce and industry (LCCI) has advised the Federal Government to adopt exclusive use of equity financing to fund budget deficits, as opposed to continuous issuing of debt instruments with its attendant burden of interest payments.
President, LCCI, Dr. Michael Olawale-Cole, gave the advice in Lagos, on Tuesday, at the Chamber’s quarterly briefing on the State of the Economy, while commending the federal government on the planned electronic payments from public treasury from March 1, 2023.
His words: “Looking at the huge deficit to be financed by borrowing, can we consider more efficient alternatives to new borrowings? Can we issue equity to finance the deficit instead of using debt? Can we break the path in which the federal government only approaches the debt markets at home and abroad and never approach the equity market at home or abroad? Investors invest both in debt and equity.
“Our approach should not be to continue issuing only debt, especially with the increasingly unbearable burden of interest payments that exposes our fiscal vulnerability.
“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. We do not have to make colossal interest payments if we embrace equity financing. We can use some of the proceeds of our equity issuance to pay some of the debt, make the fiscal situation more sustainable and rekindle much-needed confidence in our economic and fiscal resilience.”
Commenting on the N5.24 trillion spent by FG on debt servicing in 2022, he stated: “The amount puts the country’s debt service-to-revenue ratio at 80.6 percent for the period under review, a figure far above World Bank’s recommended 22.5 percent for low-income countries like Nigeria. We must warn again that borrowing to fund subsidies, which is spending the money we do not have, is totally unsustainable.”
The LCCI president commended the federal government on the planned policy that all payments from the public treasury must be done electronically with effect from March 1, 2023, noting that effective implementation of the policy will deepen the cashless economy.
The post LCCI calls for equity financing for budget deficits appeared first on Vanguard News.