Director-General, DMO, Mr. Abraham Nwankwo
Senate Committee on Local and Foreign Debts Thursday asked the Debt Management Office (DMO) to ensure the enforcement of a debt ceiling for state government's bond issues in order to curtail excessive borrowings.
The call came amid state's growing appetite for the bond market for long term funds and the possibility of an unhealthy debt profile if unchecked.
The Committee, led by it Chairman, Ehigie Edobor Uzamere, expressed its concern during its oversight visit to the DMO.
However, Director-General, DMO, Mr. Abraham Nwankwo, assured the committee that measures had already been put in place to check excessive borrowing from the capital market.
He said:“No state will be allowed to borrow if its total debt service outlet on a monthly basis is above 40 per cent of its FAAC allocation for the past 12 months. This is bearing in mind the fact that every state should have Internally Generated Revenue, IGR and so should not depend fully on FAAC. There is no state in Nigeria that should not be viable without oil.“So once your debt service each month falls within the range and you have IGR as a fall back, then you may wish to borrow to carry out some infrastructural developments."
The committee said it wanted to ensure that like the federal government, states were being supervised and advised to ensure sustainable debt management. Nwankwo also noted that there were some states which had met the criteria and wished to borrow but were advised by the DMO against such move as seeking alternative funding source would be better for them.Meawhile, the DMO DG said it would exercise diligence in ensuring that the country does not near the dangerous threshold.
He said: "Apart from the bond market, most of the borrowings we do now are from very concessional windows of the World Bank, or the African Development Bank, ADB with a maximum interest of 1.25 per cent per annum."
The chairman, however, praised the organisation for facilitating the inclusion of the Federal Government Bonds index by J.P Morgan adding that it marked a major breakthrough for the country.
He said the Senate would consult widely for an improved remuneration and working condition for staff of the agency in view of the crucial and unique role the institution plays in the current economic and development challenges in the country.
A rundown of the 15 states which had sought funding from the capital market showed that Lagos top the chart with N275 billion bond issues while Imo had N18.5 billion issued in August 2009.Others are Kwara (N17 billion); Niger (N6 billion issued in October 2009); Bayelsa (N50 billion issued in June 2010); Kaduna (N8.5 billion issued in August 2010); Ebonyi (N16.5 billion issued September 2010); Benue (N13 billion issued in June 2011); and Edo (N25 billion issued in June 2011) and Gombe N20billion issued early October 2012.Only recently, Delta and Rivers States had also issued N200 billion and N100 billion bonds respectively.