Nwankwo: Nigeria's Public Debt Service Mgt is One of the Most Respected Globally


The federal government’s plan to borrow $29.96 billion under its 2016-2018 External Borrowing (Rolling) Plan has generated intense controversy. Many arguments against the move centre around whether or not it is not another attempt to plunge the country into a fresh debt trap while some see the amount as humongous. In this interview, the Director General, Debt Management Office, Dr. Abraham Nwankwo argued that the government has continued to put in place various structural and fiscal reforms not only to overcome recession, but to ensure that, when secured, the loans will be efficiently channeled into addressing the nation’s infrastructure deficit. Ndubuisi Francis presents the excerpts:

Some analysts are worried that the money you want to borrow, though with low interest rates, is a way of luring us into a debt trap. How do you react to this, and what’s the rationale behind it?

The first thing to note is that this borrowing is normal; normal in the sense that over the past 20 years, there is no year we have not borrowed. I am not aware of any year in the past 20 years that Nigeria has not borrowed. So, interpreting the proposal submitted to the National Assembly by Mr. President for a three-year borrowing programme to be an indirect way of trapping the country does not seem to be logical because Nigeria has always borrowed every year.

Every year, there is a budget and if you check the budgets many years back, you will see that we have been borrowing both externally and domestically. So, there is nothing new about this. Let me also emphasise that since we exited from the Paris and London club debt in 2005-2006 we have always borrowed almost from all these sources we want to borrow from now. It was the Chinese loan that financed NIGCOMSAT more than seven years ago. This is to show that Nigeria has always been borrowing on an annual basis; so it is usual. The medium term external borrowing programme is also not new. I am sure that by next year, it would be re-presented because 2016 would have been exhausted completely and a new rolling plan will come in. That’s why it is called a rolling programme.

It is part and parcel of the total fiscal framework because fiscal framework includes the Medium Term Expenditure Framework, which explains how you will fund the expenditure over the medium term, and one of the items for funding expenditure over the medium term would be the financing item, which is borrowing and that has always been there. This is to confirm to you that there is nothing new about this borrowing proposal which Mr. President has placed before the National Assembly. It’s a normal procedure for funding the development of the country.

Sir, based on what you have just explained, I want you to use the instance of NIGCOMSAT as a reference and tell us what we have actually benefited from all these borrowings over the years.

NIGCOMSAT is too abstract for the man on the street, so I won’t want to use that because it is about satellite imaging and ordinary Nigerians cannot appreciate it. I would rather talk about something more straight-forward. You are aware, for example, that the Nigerian airports are being remodeled; new terminals are being built in almost all parts of the country. These are being done with borrowed money, over the past four or five years. The Abuja Airport road was expanded from four lanes to ten lanes, same with Abuja-Kubwa-Kaduna road. These two projects were actually funded with money borrowed domestically. You are aware that the Nigerian rail lines are being resuscitated with new locomotives purchased, and Lagos-Ibadan,-Kano rail line has been fully resuscitated.

These were done with external borrowing. These are some of the examples and on routine basis and on a permanent basis, you are aware of the various agricultural projects, some mainly funded by the World Bank and some of them in some areas are called FADAMA and some of them are still existing in all parts of the country. All those projects are funded with borrowed money. You are aware of the polio eradication programmes. Those are funded with borrowed money from International Development Association (IDA) in particular. That is the concessional window of the World Bank. You are aware of the various rural water supply schemes.

These are funded with money borrowed from the multilateral sources. So, these are some of the major popular projects that we have said but in general, all the monies borrowed from external sources are projects-tied. Let’s use a good example of the World Bank. You are aware that the World Bank cannot give you a loan without supervising it themselves; that is the system. They must supervise it themselves and they must have people working with the Nigerian team to monitor the project from the beginning to the end and they don’t just disburse the money and walk away, they disburse the money as the work progresses. So, even when Nigeria seeks for a loan and it is approved, the disbursement of the loan is done according to the schedule of the work itself.

Sir, I asked the question because of pessimism. People are afraid. You have mentioned laudable ones but the Abuja CCTV contracts is moribund and nobody talks about it and we ask questions, but nothing, yet it was funded by a Chinese loan. It is not working and there are no efforts made. What is going on?

Very good observation; the two things to say about that is that, first, there is no doubt that Nigerians are right in asking questions and getting concerned about value for money and about how we get proceeds from what we use. The concerns are valid, correct and appropriate. Nobody should doubt that and the important thing to say is that in every system where there is a failure, there are people responsible for tracking why there is failure and for doing the monitoring for effective and appropriate sanctions; there is need for sanctions. So, that is what I can say about that. I am not going to say everything has been perfect; if everything has been perfect, Nigerians wouldn’t be concerned.

Nigerians are reacting based on the experience of many years and they are right to be concerned and also right to ask questions and in deed Nigerians, including journalists should feel free to confront relevant agencies and MDAs responsible for such projects because every project has an MDA that is responsible for it. Whether it is a road, hospital or university building, airport, farm project or a satellite, you know those responsible. Everybody in the country has his or her own role to play to find out what is happening and the government encourages every Nigerian to be involved and let me also say that the good thing is that, yes, we are concerned that resources were not used as efficiently and transparently and accountably in the past. That is the truth and so we should be concerned about the present and the future.

However, it is also appropriate to recognise that we have an opportunity that is very different. We have a government, a president whose administration is founded on transparency, accountability and anti-corruption, which means we have a greater chance and we should have more confidence that resources, revenues as well as loan proceeds will be more efficiently, accountably applied and will not be siphoned through corruption. Having said that, we will make sure that all the various apparatus available for monitoring, for making sure that resources are well used should be put into effect, we cannot afford this time around to experience wastages so the government agrees with the Nigerian people that we cannot afford to continue wasting resources.

DG, even if we get this loan from external sources, shouldn’t the government be worried about the huge amount required for servicing these debts?

Why not? The government is worried but what you should be asking is if we are managing the debt. The essence of managing our debt is to know if we service the debt. That is why we do Debt Sustainability Analysis which we have done for 2016 and for every year. It is because we are concerned about our debt that is why we do Debt Sustainability Analysis and make the result available to the public and everything government is doing is within the scope and recommendations of that analysis.

Certainly, every government and debt manager is interested in knowing whether what it borrows, it is in a position to service it. From the analysis of the programmes of government, we know we can service our debt. Ever since we exited from Paris and London clubs debts, we have never defaulted in servicing our debt–whether external or domestic. We have managed our debts prudently. That doesn’t mean we are not in a position to improve. There is no country that has any system that is not improving, even the best systems in the world—the US, UK, Germany, they’re still improving. So, we are not saying that we have arrived at the peak; we are still improving.

But you should also give us the credit that Nigeria’s public debt service management is among the most respected in the world in terms of what they do and how they do it. I assure that the proposal which Mr. President has put before the National Assembly for external borrowing has taken into account Nigeria’s ability to service the debt, taking into account that those external borrowings are at very affordable interest rates. Most of them are below 3per cent per annum and all of them range between 15 and 30 years in tenure and their moratorium range between five and years. So, those loans are at relatively concessional terms.

Talking of debt service, one of the reasons why they tilt to external borrowing is because compared to domestic borrowing, they are much cheaper–at least 7 per cent cheaper than domestic borrowing, which means when you look at their tenure and the interest rate, it means that their impact on debt service will be minimal per annum. So, they are even more serviceable. If you borrow the same amount from the domestic source, you will find out that the impact of the domestic one will be at least three times higher than the impact of the external one.

So, in terms of debt servicing, remember that sometime in August, the DMO presented through the Minister of Finance to the Federal Executive Council, the debt management strategy, which proposed that in the medium to long term the mix between our domestic and external debt should be changed from the current mix of 82 per cent domestic and 18 per cent external; that in the medium term, they need to mix it about 40 per cent external and 60 per cent domestic and that was approved. It’s a strategy that Nigeria has adopted and so the medium term external borrowing programme is working in the context of that programme. So, it is consistent with the programme, which we have accepted as the appropriate strategy to follow in the medium term.

Why are you going to give the states a slice of this loan when some of them can’t pay salaries?

That is not the way to look at it. You are not giving them a loan. We are talking about an economy. You want to develop; the economy needs infrastructure, basic education, rural water supply. If a state in the Federal Republic of Nigeria is having a fiscal challenge and they also need water supply for their people, wouldn’t you encourage them to have water for their people? Then that is not development. So, the fact that you have a problem doesn’t mean you have to run away from your responsibilities. Nigeria is one economy, as you know. The Minister of Finance has taken initiative to see that in addition to existing procedures to see what can be done for states’ fiscal position to get better in terms of the Fiscal Sustainability Plan, which contains 22 items on the checklist of what the minister has initiated for states to start cleaning up their books, to start building strong foundations. And as that is going on, we still have to support their development because the development of the 36 states of the federation plus the FCT is the development of the Federal Republic of Nigeria.

During recession, governments borrow and we know that external loans are cheaper because of all the variables. The society is also able to borrow from the banks domestically while the government is concentrating outside. But when the analysis of the current borrowing plan was revealed, everything was clear but there was an item of $6 billion for ‘Others’. What is that ‘others’?

The details of the $6 billion ‘others’, I’m sure, will be for infrastructure. I don’t think I have noticed that. You know that the aggregation of the borrowing plan is produced by the Ministry of Finance—the International Economic Relations department of the Ministry of Finance. This is not to say that it is their problem, it is not my problem. No, I am not saying that. I’m sure they have the details but I can assure you there is no way the Federal Government of Nigeria will go and borrow billions of dollars on nothing; it must go to a project because even the person lending it will have to lend it for a project. The World Bank, for example cannot give you the money in full– they have to supervise their project.

It’s as the project progresses that they continue disbursing and at the end of the project, they sign off because they have to also go and report to the board of the bank to show that the project has been completed. I can assure you that every money borrowed will be used well particularly under this administration. China Exim does not monitor, because it is export credit that they deal in. For every loan that comes from China Exim, you don’t get cash so they don’t monitor. It is for projects that you want to install with particular design. So, it is we Nigerians that will supervise to make sure that the design that was agreed is what is on ground because they’re not giving you cash.

Last month, the World Bank asked the federal government to embark on further reforms in order to be able to attract their facility.
As it is now, a few days ago, the AfDB also said the same thing while releasing $600 million, being the first tranche of its $1 billion budget support loan for Nigeria. Right now, we are talking of approval from the National Assembly. If we get the needed approval, are we saying that the reforms demanded by the World Bank have also been met?

We don’t need them to tell us before we carry out our reforms. Our reforms are ongoing and we are maintaining the momentum of fiscal reforms like the Fiscal Sustainability Plan, the establishment of the Efficiency Unit to improve efficiency. There is the Presidential Initiative on Continuous Audit. These are reforms; so we know we must have reforms. The reforms are ongoing so whether our friends ask us how far we are doing or not, we know we need reforms and we have been doing reforms and will continue doing reforms because we know we need them. We are also doing structural reforms. This is to assure you that the Nigerian government and people know that we need reforms and we are going ahead to carry out these reforms for our benefit.

The Constitution guarantees Federal Character in the allocation of resources but in the details of this loan, there appears not to be a reflection of the Federal Character Principle. What informed that?

What we should ask ourselves is, what is the procedure? Apart from the nationwide projects, state-by-state original projects, what determines it? The procedure is that every state knows the normal procedure because no state in Nigeria is a new state. States have always borrowed externally so they know the process. For example, if you want to borrow from the World Bank for agriculture, you will approach the World Bank’s local office in Nigeria to know what kinds of loans they have for agriculture or for water supply or for health and based on those preliminary discussions, the state will relate with the International Economic Relations Department of the Ministry of Finance and based on the guidelines of both the World Bank as lender and the International Economic Relations Department, which is the federal government agency, they begin to articulate and aggregate these things. It is demand-driven.

All I can say about that–if there are states or regions that believe that they have been excluded, what we should do is find out from them whether they submitted proposals to both the creditors as well as to the International Economic Relations Department of the Ministry of Finance and those proposals were not considered, because even if you make a proposal and it was not considered between you and the people evaluating your proposal you would have agreed on what is appropriate and what is not. You should find out whether there are states that proposed and were left out. DMO is not responsible for receiving those proposals so it would be nice to find out from the states whether there is a discrepancy between what was submitted and what was put forward.

Part of the $29.96 billion loans is the Eurobond. Have you appointed a consultant?

We are in the process; we are undergoing due process because everything we do must follow due process.

Since JP Morgan and Barclays backed out of our bonds how have Nigerian bonds faired in the market?

JP Morgan and Barclays backed out more than two years ago and we have been doing well. If we have not been doing well, we have been doing auctions every month. There is no month that we have not done an auction. If you go to the 2016 Budget, there is a provision for domestic borrowing. Has anybody complained that when it is due to fund the budget that it has not been done? That Barclays and JP Morgan left has not impacted negatively on our bonds and I emphasised when they left that they did not develop the market for us, we developed the market ourselves. They saw that the market was good, they came to identify with it so if they leave that’s their own business because it is an indigenous market. We did not import from them, we developed it so the market is performing and supporting the growth and development of the economy.

You can go and check to see how many corporates, not just governments are borrowing from the market to support economic development. So the market is strong; the domestic bond market, which we developed for Nigeria is strong and thriving. In spite of the global challenges, it is growing. It is strong because we have strong players, strong private sector players. In the capital market, there are strong regulators like the SEC, strong facilitators like NSE and strong supervisor in the Federal Ministry of Finance. So, the market is strong. It is not just enough to say that our domestic debt is high but there are benefits in depending on the domestic bond market because by government borrowing from the domestic bond market it helped to develop the bond market which has given it some stability in terms of some alternative sources of funding not only for the government but also for the private sector.

Some analysts have argued that instead of borrowing to finance infrastructure that why don’t you allow the private sector do that by giving them sovereign guarantees to build infrastructure. How do you react to that?

Our (DMO’s) position is that government should and government is exploring all options. In order to fund infrastructure, government is encouraging the private sector through Public Private Partnerships, through concession, through BOT (Build, Operate and Transfer), through guarantees but that doesn’t mean that there is any country where all the infrastructure will be funded by the private sector. There must be some component of infrastructure that must be funded by the government because the private sector does not find it attractive at that point in time. Government is not excluding the private sector from participating in infrastructure funding rather it is encouraging them. But government also appreciates that there must be part of the infrastructure which it must fund, at least, at this point in time.

Can we have an update on the proposed Sukuk bond?

We are working on it, the Minister of Finance has indicated that the sukuk should be out in the first quarter of 2017 and so we’re working towards that date the minister has set.

How much exactly is our debt profile?

Our total debt stock as at the end of June 2016 is N16trillion, which is 12.24 per cent of our GDP and so we will continue to emphasise that relative to our GDP, we are very comfortable but we also accept that we have a challenge with our domestic debt service because of the high cost of fund domestically, which is one of the reasons why there is need, if we must borrow (as we must borrow), it is necessary for us to see how much we can conveniently borrow from external sources since that will help reduce the domestic cost of funds. This is because when the demand from the domestic market by government drops, it means whatever resources are available are there for the private sector and because the demand pressure is lower, the cost will be lower too. That’s one of the strategies of government; that’s one of the reasons why borrowing from the external source is encouraged.

People always say if you borrow from external sources, how will you service external debt? In our view, you have borrowing to turn around the economy, to have efficient rail and road transportation, efficient and reliable power supply. That’s why we’re borrowing; we are not borrowing for borrowing sake. You want to transform the economy by covering the infrastructure deficit; if you do that, the cost of production in the economy will fall.

So, beyond inflation and all those issues like infrastructure deficiency we will deal with them. Moreover, if you have sufficient infrastructure, it helps to diversify both export and domestic supplies. We import most of our goods some of which we produce locally but the imported ones are cheaper but if the cost of production falls because of reliable and efficient infrastructure, the cost of production falls. The final products from Nigerian factories will be low, and Nigerians can now buy the lower ones, so that boosts the economy.

On the other hand, the fact that you are producing competitively at cheap cost here means you can even export even beyond West Africa because you can now compete just as China is producing at cheap prices and bringing them here. We can also produce at cheap price and sell to other countries. When you start exporting to other countries, of course, you will start earning more foreign exchange.

If you’re exporting five or seven export products, in addition you are exporting maybe, three or four or five solid minerals which belong essentially to government. With that type of diversification (exports from the private sector and export of solid minerals), in addition to oil and gas, if we build infrastructure in the next five to seven years before those loans mature in 15 to 30 years, we should be in a position to service our debt and you would have turned around the economy.

But you can’t fold your hands and remain where you are. You want to move forward by mobilising resources but if there is a way anybody can propose we mobilise revenue that is enough to cover the infrastructure deficit in the next five to seven years, that would be fine. But the important thing is that we need to mobilise revenue from whatever appropriate source to solve the infrastructure deficit to turn around the economy, to exit recession, to make sure that once and for all, we are no more a monocultural economy. If the country is exporting five to ten different products, whether there is a shock globally or not, Nigeria will be stable and we will not be crying about exchange rate reserve because we are well diversified. That is the whole idea and that is what government wants to achieve.

Remember that the bottom line of all these is poverty reduction, employment generation because when you invest in infrastructure continuously for the next five to seven years, you are creating employment in addition because you have provided infrastructure, the real sector will boom because what is holding down agriculture and agric-processing, small-scale enterprises is insufficiency of infrastructure.

So you can imagine if all of us work together, look for appropriate sources of revenue, equity direct investment or debt and we solve this problem in the next five to seven years, which means in the next ten years, we will be operating at real capacity the economy will be steaming full blast and that’s what we need. It’s this change that the government is looking at, so whatever any Nigerian can contribute for us to achieve this change to transform the economy so that we reduce poverty, generate employment so that in the next seven to ten years, we will not be complaining of mass unemployment for the youths. That’s the whole idea.