By Babajide Komolafe
For Nigeria to avoid a sovereign debt crisis like it is being experienced by some European countries, all the three tiers of government must embrace and institutionalise prudent management of their debt profile
This is the driving force behind the engagement of the Debt Management Office (DMO) and the 36 states government.
“After we exited from the Paris club debt, the challenge was we had to focus on public debt management, in such a way that it will help the people.
In that regard, we appreciated that since Nigeria is a federal system, it was important to ensure that global best practice and standards in public debt management does not get limited to the centre, but is also spread to the states to achieve macro-economic stability since we have just one economy and not 36 economies,” said Dr Abraham Nwankwo, Director-General, DMO.
The DMO was established in 2000 to centrally coordinate the management of Nigeria’s debt, the agency is tasked with the responsibility of ensuring good debt management practices that make positive impact on economic growth and national development.
Within eleven years, the agency designed and implemented an orderly and articulate debt management strategies to the inefficiencies in the management of sovereign debt at the federal level, which was created by the decentralised and uncoordinated approach to the management of the nation’s debt stock.
In 2007, the agency began to implement various initiatives to ensure that its achievement is extended and institutionalised at the state level. Nwankwo gave detailed account of these measures and progress made by each state at an interactive session with finance correspondents and business editors in Lagos recently.
State Debt Management Department
The first measure in this regard is to assist and encourage each state to established Debt Management Department. “In 2007, we agreed with the states to start having debt management departments in their various states.
We also agreed with the states to develop a template for that purpose. That template contains issues such as administratively setting up the institutions, having the legal backing of such institutions, capacity building for the personnel that would run the institutions as well as the various processes, procedures and system needed to achieve the objectives.
In summary again, the objective is to ensure that in an effective and efficient manner, we get the states to work with the DMO to establish debt management departments. We have carried out a number of activities such as fiscal responsibility workshop and the states participated actively during the workshop. The passage of the Fiscal Responsibility Act has assisted states in facilitating the passage their own fiscal responsibility law. .
I am happy to announce to you that as at date, all the 36 states have established their debt management departments. Out of the 36 states, 16 have gone to the extent of backing it up with a law. That means they don’t want to take the risk of anybody distorting that institution in the next 10 or 15 years knowing the challenges of public debt management in the past. We are also encouraging other states to back up their own department with legislation..
In terms of legal framework, one state among all the states of the federation has however passed both the fiscal responsibility law and the public debt management law. There are seven states that have passed only the fiscal responsibility law while there are eight states that have passed only the public debt management law.
Apart from a total of the 16 states that have passed either any of them (fiscal responsibility or public debt law) or both, seven other states have also drafted their fiscal responsibility laws and have presented them for enactment by their lawmakers. As at today, out of the 36 states, it is only four states that have not yet enacted their fiscal responsibility law.
So, we can say that the efforts we have made in encouraging states to pass the necessary legislations that will ensure effective public debt management has yielded fruits substantially to the extent that 32 out of the 36 states have taken measures to ensure that these laws are either in place or are in the process of being put in place,” Nwankwo said.
Capacity Building in Debt Management
The DMO is also helping the states to build capacity in debt management through training programmes for capacity building in debt management which have been extended to state programs.
According to DMO D-G, “One of the aspect of capacity building we do at the debt management office is that states come to the DMO for attachment for more than one or week. In this respect, I am delighted to inform you that all the 36 states have participated in the attachment programme at the DMO.
Indeed, some of the states that have special needs have come for the attachment more than once. The attachment programme enables them, not just to undergo basic tutorials, but to have some hands-on experience by working with us during the period they are to stay at the DMO.
It helps them to observe the processes, procedures we adopt and moreover, how we organise and how to manage debt. We believe that capacity building and training will be a continuous exercise and therefore, we have followed up since November, with additional training on the application of Microsoft excel for effective sub-national debt management.
Comprehensive Debt Data
DMO is also assisting the states to build comprehensive data base of domestic debt. “We have done the domestic debt data for 25 out of the 36 states. You may recall that as as December 2010, we had done for only about 14 states.
This means, we still have about 11 states remaining and we hope to carry out the exercise for the 11 states next year. As you know, our target is that at the end of 2012, we should have finished constructing the domestic debt data for all states of the federation. It is important to mention that the debt data reconstruction captures all elements of public debt in the state.
It captures not only their borrowing from banks, but also their borrowings from the capital market, their indebtedness to contractors or suppliers. It is also important to emphasis that this exercise does not show that the states have failed to do what they were expected to do. No! As you know, public debt management started in Nigeria by 2000.
After conducting the domestic debt data reconstruction, we appreciate that we need to ensure that there is a follow up, to assess whether the states have acquired the relevant skills to continue with the exercise. This is because when we conducted the domestic debt data reconstruction, we do it with a combined team from the DMO and the states.”
Every quarter, we publish and we tell the public, how much the country owes externally and domestic. For the breakdown of what the state owe, every six months, we publish what every states owe on our website and we also publish the total figure. So, our total external as September 30, was $5.6 billion and when you go to the website, you will see the breakdown for all the states of the federation as at June. Our domestic debt on the other hand, was N5.3 trillion ($34.4billion).
So in dollar terms, our total debt (domestic and external) as at September 30, 2011 is $40 billion. More importantly, the $40 billion is 19.6 per cent of the country’s Gross Domestic Product (GDP). Now, the global standard for all countries that are in our peer group is that you total debt to GDP should be about 40 per cent. That is the global standard.”