DMO, World Bank push states’ debt management laws

By Emma Ujah, Abuja Bureau Chief

The Debt Management Office (DMO) has supported the Naira Exchange Rate with $15. 368 billion.

The Director-General of the DMO, Ms. Patience Oniha, disclosed at the Workshop on Understanding Nigeria’s Public Debt Management organised for The Secretariats of the Senate Committee on Local & Foreign Debts and House Committee on Aids, Loans & Debt Management, in Abuja, yesterday.

According to her, the $15. 368 billion which was raised from external borrowings between January 2011 and September 2021 strengthened the nation’s foreign reserves, thereby firming up that nation’s currency at the foreign exchange market.  

Ms. Oniha explained that there was more to external borrowings than just raising funds to finance budget deficits.

Her words, “The DMO’s activities are not limited to domestic financial markets. It may please you to note that the DMO has raised over USD15.368 billion through Eurobonds and a USD300 million Diaspora Bond to finance budget deficits and various projects.

“Through these securities issuance in the international capital markets, the sources of funding for the Federal Government has expanded while it created opportunities for Nigerian corporates including banks to raise capital abroad. Perhaps, even more important, the proceeds of Eurobonds issued, increased Nigeria’s External Reserves thereby supporting the Naira Exchange Rate.”

The new borrowings are undertaken in compliance with legislations and public debt is managed in accordance with international best practice and that Debt is serviced in a timely manner. In the case of the latter, the DMO undertakes an annual Debt Sustainability Analysis and is guided by a Medium Term Debt Management Strategy which is prepared every four (4) years.

On the 2021 domestic borrowing, the D-G disclosed that about 90 percent of it has already been achieved through various securities.

READ ALSO: DMO advises on cutting borrowing, as Senate calls for policy reviews

Her words, “As you know, for the domestic borrowing for this year, we have about N3.145 trillion from both the Appropriation Act and the supplementary.

“As you probably know already, we will raise between N200 billion and N250 billion Sukuk, so what is outstanding is about N345 billion

“So we have raised about N2.8 trillion, what is remaining is about N350bn. We’ll do a sukuk, possibly within two weeks, the remaining we would raise from an FGN bond auction in December, we still have one more month to go. So we are almost there.”

2021 External Borrowing  

Ms. Oniha added that $4 billion out of the $6.18 billion approved external borrowing in the 2021 budget has been realized.

According to her, “For the external, which is about $6.18bn, we raised $4bn in September. We did have what you will call demand, which is the same thing as an order book or subscription of over $12bn, but the advisers said to us, let’s drop the interest rate a bit and see how much we get and also $6bn at once is huge.

“You know after you issue, then there’s a secondary market where they are traded, so we dropped the rate a bit and we still had demand of over $9 billion, but $4bn was a good size to issue at once so that it doesn’t become such a surplus in the market that the price will not be very good both for the sovereign and for other borrowers.

“So for the remaining $2.18bn, we are working with the transaction advisers and monitoring the market.  If we think the market is good and our supervisors say we should raise that money, we will. But our options are on the table for the borrowing sources. We’ve done quite a lot to fund the 2020 budget.”

Debt Sustainability Analysis

The DMO boss noted that the nation’s debt latest sustainability analysis showed a 21.61 percent Debt-to-GDP ratio, much less than the 40 percent limit set by the nation for itself and the 55 percent recommended by the World bank..

She said, however, that the nation has to pay more attention to the revenue, as according to her, “we use revenue to service debt.”

Her words, “Our Debt-to-GDP is low, about 21.61 percent now. The limit we put for Nigeria is 40 percent, as a country, but the World Bank recommends up to 55 percent.

“So if you look at it from that narrow perspective, you’ll say it’s sustainable. But really, it’s revenue that you use to service Debt, so we need to generate more revenues to ensure that the Debt is sustainable going forward. We just concluded one for 2021, the report will be out soon. But it did show that our Debt is very sensitive to revenues, implying Debt service, so we need to more in that area.”

Promissory Notes

Ms. Oniha disclosed that the federal government had issued about N1.5 trillion Promissory Notes to various categories of its debtors including contractors, oil marketers.

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