DG of DMO, Dr. Abraham Nwankwo
Given the reactions that trailed federal government’s plan to borrow to finance part of the 2016 budget, the Debt Management Office should do more to enlighten the public on the country’s debt profile, writes Goddy Egene
When considering past experience of Nigeria in terms of debt deployment, many Nigerians always kick against new moves by governments at all levels to borrow. Most part of money borrowed in the past, were wrongly deployed. And in some cases, the funds were completely diverted.
Hence, skepticism and protests always greet attempts to increase the debt burden of the country. An analysis of the debt taken by Nigeria over the years will show that it is not commensurate with the level of infrastructural development. However, to achieve any rapid and meaningful development and growth, the country cannot rely solely on its internally generated revenue. The country needs to get extra funding that could accelerate the infrastructural development that will ultimately lead to growth of the economy. That was why some analysts said what was needed was proper utilisation of the money borrowed. Why nothing is wrong in borrowing, everything is wrong when the money borrowed is diverted.
Besides, there is the issue of whether or not Nigeria has over borrowed. Analysts are divided on this. But the Debt Management Office (DMO) has restated that at below 20 per cent debt-to-gross domestic ratio, Nigeria is very much still in the comfort zone to borrow. One analyst, who believes Nigerian can still borrow for productive purposes is a development economist, Odlim Enwegbara.
According to him, the DMO has been effective in the management of the country’s debt portfolio, adding that what should be the focus of the government is to ensure that debts being taken are project-driven.
“This is, however, dependent on if our debt remains project-driven, particularly infrastructure-based loans that by reducing our current infrastructure deficit, reduce the present high cost of doing business and high interest rate causing high arbitrage,” he said.
Comparing the debt-to-GDP ratio of some countries, Enwegbara said Japan’s stands at 224 per cent; Italy’s at 128.50 per cent; the United States at 107 per cent; France’s at 95 per cent; the United Kingdom’s at 89.80 per cent; South Africa 44 per cent; India’s 66 per cent; Brazil’s 60.8 per cent; Kenya’s 50 per cent; Ghana’s 67.50 per cent.
“With Nigeria at 17 per cent, the country has the opportunity to raise funds that are projects specific to fast-track the infrastructural development of the nation,” he declared.
Established in 2000, the DMO has recorded significant achievements. Prior to the establishment of DMO, the management of the nation’s debt prior to the establishment of the DMO the management of our national debt was characterised by systematic and structural deficiencies.
In practice, debt management functions were split across several government departments including the Federal Ministry of Finance, the Office of the Accountant General of the Federation and the Central Bank of Nigeria.
This approach was laden operational inefficiencies and poor coordination, inadequate debt data recording system and poor information flow across agencies. The result was inaccurate and incomplete loan records which gave rise to difficulties in the verification of creditors’ claims arising from conflicting figures from various bodies handling the debt management function.
However, the establishment of the DMO brought sanity into the system as it centralised the nation’s debt management functions with the statutory mandate of maintaining comprehensive, accurate and timely records of the nation’s debts, prudent management of the debt portfolio and negotiating with and ensuring debt relief from creditors.
The emergence of Dr. Abraham Nwankwo at the helm of DMO in 2007 gave more fillip to the operations of the agency with positive impact on the economy.
Given his solid academic background and position as one of the pioneer management staff of DMO, Nwankwo led the charge in the on-going transformation of the capital market and played a pivotal role in the repositioning, strengthening and resuscitation of the FGN Bond market.
The DMO has formulated a National Debt Management Framework (NDMF), 2008-2012, a review of same and publication of the revised (2nd) NDMF, 2013-2017 which incorporated debt management policies and guidelines.The agency has ensured regular and timely servicing of government’s debt has continued to conduct an annual Debt Sustainability Analysis (DSA) and has successfully prepared a Medium Term Debt Management Strategy (MTDS), 2012-2015 which is being implemented.
One of the major objectives of MTDS is to achieve optimal composition of external and domestic debt structure and to ensure low cost of government debt consistent with a prudent level of risk.
DMO has consistently promoted policies to encourage the creation of opportunities for private sector access to long term capital in both domestic and international capital markets in order to sustain and expand their businesses.
Determined to facilitate access to the International Capital Market for Nigerian corporate players, DMO issued $500 million Sovereign Eurobond in 2011. This was followed with $1 billion dual-tranche Eurobonds in July 2013, thus creating benchmarks for corporate borrowers. In 2014, DMO issued FGN Bonds in Global Depository Note (GDN) format for the first time aimed at diversifying the investor base and attract foreign investors to the domestic securities Market.
Besides, DMO developed a template for the establishment of Debt Management Departments (DMDs) which include outline of the legal institutional human resource framework. All the 36 states including the federal capital territory (FCT) have established DMDs) in conjunction with the agency.
Late last year, DMO assisted in the managing and restructuring of the debt of cash strapped states in the country as a result of their failure to meet their financial obligations. Following the announcement of a bailout package for the states by President Muhammadu Buhari, 22 states applied to DMO for their debts to be re-structured into Federal Government of Nigeria Bonds. The agency successfully concluded the restructuring of N322.788 billion short term commercial bank debts of 11 states out of the 22 states to long term domestic bond at 14.83 percent yield in 20 years.
Carrying Nigerians Along
Despite the numerous achievements and transformation DMO has brought to the management of debt in the country, many stakeholders believe there is the need for more enlightenment on its activities. According to them, as the government prepares to raise debt capital to finance part of the 2016 budget.
“Considering the current economic challenges, some people believe borrowing more may throw the country into more indebtedness. This is one of the reasons DMO should do more so as to enlighten the citizenry on the need to borrow to fund the budget. Also, DMO should adopt a system whereby all parts of the country is reached for enlightenment. The more the people understand the debt position, the more support they would give to the government so as to find ways of funding the budget,” an analyst said.
About N1.8 trillion will be borrowed from both domestic and foreign markets. Already, the DMO has concluded arrangements to raise between N260 billion and N350 billion from primary issue in the first quarter of 2016. Hence, the agency needs to do more in terms of enlightenment, reaching across to more people to understand how these funds would be deployed for growth and development of the country.