‘High inflation, oil market uncertainty to distort budgetary assumptions, targets’

Without actionable policies to address the high fuel and food costs, the Lagos Chamber of Commerce and Industry (LCCI) has warned that the prevailing high inflation rate will continue to distort most of the budget assumptions and targets.

According to the chamber, as a result of several shocks suffered by many economies over a more significant portion of 2022, various projections and analysis of economic conditions across regional blocs point to the likelihood of a recession or a significant slowdown of growth in 2023 owing to spiraling inflation, high energy cost, monetary policy tightening, and weakening consumer demand.

Speaking during a state of the economy conference in Lagos, yesterday, LCCI President, Dr Michael Olawale-Cole, expressed concerns that a rate hike will not tame the increasing inflation without complementary targeted fiscal intervention from the government.

“Looking further into 2023, the war in Ukraine and mounting sanctions on Russia may all continue to impact supply chains for commodities and shocks to financial systems across the world. The likely failings of the G7 countries’ agreement on the Russian oil price cap, the resurgence of COVID-19 infections and the likely return of restrictions, and renewed tensions in the middle east may all continue to keep oil prices upward and volatile in the short term”, he noted.

To hedge against negative growth and likely recession, the LCCI advocated targeted interventions in selected critical sectors like agriculture, manufacturing, export infrastructure, as well as the need to tackle insecurity.

“We urge the government to keep track of plans to tackle oil theft, to boost oil exports and earn more foreign exchange. We also commend the government for the effort being made to-date to combat the cartel involved in oil theft. If these efforts had started earlier, the nation would have made huge economic gains. We, therefore, appeal to the government to intensify these efforts.
“The cost of logistics has gone up owing to the poor state of our roads and the lack of connection among farms, factories, and markets. To reduce the shocks from disruptions to supply chains for raw materials, manufacturers should be assisted with subsidised input and more allocation of forex for importing critical inputs”, Olawale-Cole added.

On budgetary financing and debt management, the LCCI advocated efficient alternatives to new borrowings, urging the government to conservative raise tax rates, since there are new ways of rescuing some tax expenditures to add up to government revenue in 2023.

According to the chamber, 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 approaches the equities market at home or abroad? Investors invest both in debt and equities.
“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”, he added.

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