May 30, 2023

CBN to states: Be transparent with your debts

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Emma Ujah, Abuja Bureau Chief

The Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, has charged state governments to be transparent in securing loans, the utilisation of such loans, and the management of their debts.

He gave the charge at the Sub-National Debt Management Performance Assessment Methodology (SN DeMPA) training, which opened in Abuja, yesterday.

Mr. Emefiele who was represented by the Director, Monetary Policy and member of the Technical Committee of the Board of Governors of the West African Institute for Financial and Economic Management (WAIFEM), Dr. Mahmoud Hassan, noted that some progress had been made by the states since 2007 but that particular priority must be given transparency and capacity to manage debts.

His words, “Since 2007, substantial progress has been made in enhancing state-level debt management institutions and practices, particularly with the establishment of Debt Management Units (DMUs) in all the state governments and FCT. However, significant challenges remain in the management of borrowing, debt recording, public financial management reform, and the development of debt management capacity.

“The legal, regulatory and procedural frameworks for state borrowing are incomplete, and capacity limitations impede the efficacy and efficiency of public debt management. State government legislations in Nigeria do not adequately define the purposes of subnational borrowing or regulate the issuance of sovereign guarantees, posing substantial fiscal risks.

“In general, state institutions lack sufficient capacity to execute their statutory obligations, and the increasing size and risk exposure of state debt portfolios underscores the urgent need for sound debt management practices and increased capacity among subnational government agencies.”

Mr. Emefiele noted that as of July 2019, only seven out of the 36 states had completed subnational debt management performance assessments (DeMPAs).

He added “It has become a global phenomenon now that we see debt sustainability issues, transparency in debt processes, particularly around the regulatory and settlement processes being a major topic.

“States can have access to credit. They can borrow but what borders us is: at what cost? What is the bargaining power in terms of how they get the loans because at the end of it, they have to pay back?

“What we see is that countries are becoming strict in terms of their ability to pay back even though we know that the debt that is needed to close the financing gaps of the budget is critical. It is none- avoidable but how do you manage the resources to be able to pay back? How do you manage the use of those debts?

“Borrowing is not necessarily bad but what do you use it for and what is the cost-benefit analysis of that fund that you have taken?

“What we have seen largely is that at the federal level, there is a level of the development of sophistication, in the DMO but at the state level you see deficiency in terms of capacity, in terms of institutional framework.

“At the state levels it is important that we have transparency, institutional capability and strength to be able to follow through with the processes of either debt security, utilization of secured funds and the ability to pay back.”

Earlier in his remarks, Dr. Baba Musa, Director-General (D-G) of WAIFEM said that both national and sub-national debts should be well structured in such a way that they could be easily analysed.

His words, “Both national and sub-national debt should have an organizational structure that is conducive for debt portfolio analysis, a legal framework that includes clear debt management objectives,

authorization to borrow and undertake other debt management activities and to issue loan guarantees, requirement for strategy development, and accountability, reporting and should be manned by skilled staff which adequate capacity to undertake risk analysis.

According to the D-G, the scope of sovereign debt management, in today’s world, has become much wider.

He said, “Though still a subset of fiscal policy, debt management at both the national and subnational levels of government is seen as a separate public policy area with its own objective.

“Its objective is much more focused on raising the required amount of funding, achieving its risk and cost objectives, strategy development, and accountability (producing accurate, timely and comprehensive debt data), development of the domestic debt market and execution of the strategy (borrowings and other transactions).”

The training was organized by the CBN, WAIFEM and the World bank.