Economic Recovery: Fiscal Authority Advised to Prioritise Projects with Multiplier Effects
Analysts at Vetiva Capital Management Limited has advised government to prioritise projects with multiplier effects to propel economic recovery.
The investment banking firm made the submission in its breakfast note on Monday.
Recalled that the Nigeria’s Finance Minister, Zainab Ahmed, recently revealed plans to shore up public debt to ₦32.51 trillion and ₦38.68 trillion by 2020 and 2021, respectively.
Analysts said this indicates a 4.9% increase in debt from June 2020 when total debt printed at ₦31.01 trillion and a 19.0% year on year increase by the end of 2021.
The projected increase in debt for 2021 alone constitutes 91% of the proposed 2017 budget, indicative of the magnitude of debt accumulation, Vetiva explained.
“While we note that the economy needs an expansionary fiscal drive amid low revenue capacity, it will be counterintuitive to raise taxes as firms are yet to recover from the double devaluation of the Naira and energy reforms”, the firm explained.
However, Vetiva reckoned that given the expansionary nature of the 2021 budget and expectation of low oil prices ($40), the government must resort to borrowing to finance its expenditure operations.
It stated that public debt stock could rise to unsustainable levels, given Nigeria’s low revenue profile and high debt service-to-revenue ratio.
“Any further weakness of the Naira could raise the cost of servicing external debt, reducing funds available to fund critical expenditure.
“If low oil prices persist, the capacity of the government to reflate the economy could be further constrained.
“Thus, fiscal authorities must prioritize capital projects with high multiplier effects, which can propel economic recovery”, the firm stated.
Read more: Uncertainty Shadows Nigerian Economic Recovery as Oil Price Drops
Economic Recovery: Fiscal Authority Advised to Prioritise Projects with Multiplier Effects.
By Ogochi Ndubuisi
