Nwankwo: Bond Market was Created to Boost Private Sector


The Director General of the Debt Management Office, Dr. Abraham Nwankwo spoke to Goddy Egene on the successful sourcing of $1.5 billion from the international capital markets, and how the agency is managing the country’s debt amidst the recession, among other issues

The nation’s economy went into recession last year, as the debt manager of the country, how has this development affected the functions of DMO?

Recession poses two broad sets of challenges to the public debt manager. The first is that recession requires the debt manager to configure an optimal strategy of new borrowing to contribute to the resourcing of the economy’s turnaround. The second is that recession invariably implies an abrupt drop in public revenue which, based on even only the existing debt stock, causes a dramatic movement of the debt-service-to-revenue ratio in the adverse direction. In essence, recession brings the problems of static and dynamic sustainability to the door-step of the public debt manager.

It is believed that for the country to be out of the recession, it must spend more money, what role is DMO playing in ensuring faster recovery of the economy?

DMO has been very busy structuring and raising debt resources to finance both short-term and long-term development needs of the economy, from the public sector point of view, whilst opening the window for access and credibility for the private sector, for example by consolidating Nigeria’s presence in the Eurobond market. By successfully accessing the international capital market two times in March of 2017, the DMO removed any doubt there might have been that investment capital is keen on Nigeria.

The government has been borrowing over the years but the citizens have not felt the impact, what has changed that will make Nigerians to be optimistic about the future?
Borrowing and its proceeds is simply an input, an important one though, in the overall economic management of a country. Whether or not the positive impact of borrowing will materialise is largely a function of the robustness, integrity and development philosophy of the economy management process. With the Economic and Recovery Growth Plan (ERGP) which has articulated how this government will proceed to prosper the economy, we should be confident that this time around, both debt and non-debt resources will be used to generate maximum positive impact – employment, income and poverty reduction. The ERGP emphasises inclusiveness.

DMO played a major role in the restructuring of states government debts in 2015, can you take us back to that issue, its impact and what the current situation of indebtedness in state governments?

The restructuring of the debts owed to banks by the states was the first major salutary response to stabilise the economy following the structural collapse of the international price of oil exports. The short-term bank loans were restructured into long-term Federal Government of Nigeria Bonds (FGN Bonds). The purpose was to reduce the debt-service outflow of States and free resources for meeting other obligations. A total of 23 states and 15 banks were involved in the exercise on a loan value of N575.5 billion.

Tenor was elongated to 20 years while interest rate savings ranged from three per cent to nine per cent. The debt situation of states currently reflects the reality of our economy in recession, an economy with drastically reduced public revenue, an economy that does not have diversified sources of public revenue. Nigeria (all stakeholders) has to work hard and intelligently to reverse this condition permanently in the next 3-7 years.
Concerns have been raised in some quarters that Nigeria’s debt profile is getting to high and may become sustainable very soon. How would you react to this?

Everything is being done to keep Nigeria’s debt sustainable. Debt sustainability is largely a function of overall economic sustainability. Therefore, a public debt manager, beyond borrowing and managing the debt portfolio, is also interested in helping to ensure that the economy is well-managed and is prospering. The debt manager is interested in seeing that the three major pillars of the macro-economy – the monetary, the fiscal and the structural – are performing optimally. As we reverse the economic downturn, which is the essence of the ERGP, our public debt sustainability should be getting even better.

Despite the current economic headwinds, DMO was able to raise $1 billion from the international capital markets for the country, what is the significant of this successful Eurobond issuance?
The significance is that the Nigerian economy and Nigerian people are resilient. The significance is that investors are confident about and are committed to working with Nigeria. The significance is that the DMO does not believe that there is any condition, under which it cannot support the Nigerian economy – no excuses.
Again, the $1 billion Eurobond was followed with another successful issuance of $500 million Eurobond. How were you able to achieve this feat. And in specific terms, what will the government use the proceeds of the funds for?

If the true story of Nigeria is told candidly, transparently and confidently, investors would confirm their view that Nigeria is on the right path to economic progress. The Honourable Minister of Finance, Mrs. Kemi Adeosun delivered the narrative perfectly. The DMO team are at home with the international capital market ecology. The capital projects to which the proceeds of the Eurobond issues have been applied are clearly specified in the 2016 Appropriation Act: various infrastructure projects.

The DMO has just introduced the FGN Savings Bond, what informed this decision?
We want every Nigerian, including low-income groups to participate in and benefit from the capital market. With as little as N5,000, you can invest in the FGN Savings Bond. This is in line with inclusiveness which is a guiding philosophy of President Buhari’s economic programme. Plumbers, drivers, keke-NAPEP operators, barbers and other low-income, but hardworking and noble Nigerians can now be proud holders of debt papers (bonds) which are listed and traded on the Nigerian Stock Exchange (NSE). This opportunity used to be the preserve of banks, pension funds, other corporates and high networth individuals. Now we have democratised the opportunity. Many thanks to the NSE which suggested the product and worked together with the DMO, the CBN, the SEC, the issuing houses, the stockbrokers and other capital market operators to develop the Savings Bond.

But there have been complaints that the fund raising activities of DMO is crowding out private sector. How do you respond to this?
The Medium-Term Debt Strategy which has been approved by the Federal Executive Council is very clear that the strategy is for government to reduce its borrowing from the domestic market so as to leave more space for the private sector. We created the bond market principally for the private sector to have access to long-term stable capital to fund projects in the real sector. The private sector is the engine of growth. We will not crowd them out: overall, we are creating an enabling environment for their smooth and effective functioning.