By Omoh Gabriel, Business Editor

The Director-General, debt Management Office (DMO), Dr. Abraham Nwankwo spoke to journalists in Lagos on Tuesday.

Director-General, Debt Management Office (DMO), Dr. Abraham Nwankwo

During the interactions, he allayed fears of impending domestic debt trap/overhang sayig that the Federal Government has vowed not to exceed 25 per cent debt /GDP ratio which is well below the 40 per cent global benchmark.

As a way of introduction, could you give us a brief mandate of DMO?
Thank you very much, the brief of Debt Management Office (DMO) is to manage the country’s public debts in an efficient and effective manner.
And that efficiency and effectiveness includes funding government’s need at minimum cost, and within  acceptable profiles. That means that if and when government wants to borrow to fund these various projects and programmes, the DMO would ensure that, the assignments are carried out in a manner that is consistent with national needs and aspirations.

In this context, it is important to go back to the origination of the borrowing needs for our country so that whatever public borrowing that needs to be done, will be captured in the annual budget as deficit for the year. And it is part and parcel of the appropriation Acts of the National Assembly, so it is whatever that is defined in the Appropriation Acts for the year as the amount needed to be funded at borrowing from domestic and external sources, that the DMO goes ahead to ensure that, that amount is being upheld efficiently.

Having borrowed then, it becomes important that portfolios are handled in such a way that the country does not secure additional cost  and that is assured through prompt services of a debt, that is, we ensure that the debts are serviced as at when due, the interest is paid when due, and the principal repayment which is done instalmentally as when due, so in summary, that is the major function of the public debt management agency, anywhere in the world. But taking into account Nigeria’s own peculiar circumstance, the DMO, with the approval of its Advisory Board, has the responsibility of ensuring that every state of the federation develops the capability to manage its own debt efficiently and credibly.

So over the last two years, the DMO has been helping every state to establish a debt management department by putting in place the necessary legal framework for managing their debts. We are also helping them to build their capacity for managing their debts.

We are as well working closely with them to reconstruct their domestic debt data so that they have a reliable domestic debt data base ,and more importantly,  so that they will have a reliable system for making sure that if at all they want to incur debt, for example, borrowing from banks or the capital market, they have to follow due process and have accurate records. So we are helping them to set up an effective system. So between now and 2010, therefore, if we want to evaluate the role of the DMO, it should be evaluated not just on direct management of the public debt, borrowing and managing debt for the Federal Government, but it should also be evaluated on the basis of how far we have gone with helping each of the states to have a functional debt management department.

Part of your programme was to issue bond, but from all indications, it appears that you don’t have a fixed target and that is the reason there has not been any implementation. What is your take on that?

No, we are not raising more bonds than targeted. As I said earlier, the mandate for us to borrow money for government including borrowing from the domestic market through the issuance of bond, is derived from the annual budget. If you look at all the appropriation for the years, you will be able to get the actual figure of what have been appropriated. Of course we have the main budget.

Remember we also have two supplementary budgets. So when you look at all the budgets for the year, of the Appropriation Act, you will be able to determine the total amount which we are required to raise from the domestic market by issuing Federal Government Bond and to reconfirm that we have not overshot what was approved as contained in the Appropriation Act. We do not borrow, Government does not borrow beyond the Appropriation Act. So, everything we have borrowed so far is approved by the National Assembly and contained in the Appropriation Act.

So far, what is the update on the debt profile of the country? I am particular about that.
Now, in terms of external debt of the Federal Government, as expected, it is about US$4.5 billion, as at the end of September 2010, and the domestic debt is about US$28 billion,  meaning that the total of domestic and external debt is about US$32 billion which is the total, and this is about 16.8 per cent of our GDP.

Following the tax waiver, can we know the component of states’ debts?
For external debt, you know that no state can borrow externally, the Federal Government is supposed to acknowledge and give a supplementary agreement. Because that is the conclusion of the Federal Government that no state can borrow on its own externally, so the external debt is for both the federal and state governments.

The domestic debt we have quoted is a domestic debt of the Federal Government.  So, when it comes to the domestic debt of states, that has been a challenging area because public debt management in the real sense did not start in Nigeria until 2000, and we started with ensuring that we really establish and consolidate public debt management at the federal level which we have succeeded in doing to some reasonable extent, although there is still more to be done. Now, realising that, we are at the stage of helping states to reconstruct and establish their domestic debt data.

So as I speak to you, the DMO has established a department with the sole responsibility of helping debt recognition to have functioning public debt management. The key ingredient of that programme is helping to reconstruct their domestic debt data so we can have a good record. Not only  for them borrowing from the capital market and banks but also we capture all the liabilities they have and standing as contractors and pension arrears, etc.

For now, we have succeeded in reconstructing the domestic debts of about thirteen states of the federation within one year, and our  target is that by the end of 2012, we would have reconstructed electric base data up there.

This electric base data is very important for us to know exactly their total dejectedness, that will help them to plan and help them take a realistic view on whether they should borrow or not borrow. So we are helping them reconstruct but I assure you that the electric debt data with what we have done so far is very encouraging and the figures are reasonable. But more importantly, we are putting out accurate figures if possible before the end of 2011 we will be able to give a very little update.

We have done it for at least twenty four set and we have a very good picture of what we have on ground. So the good thing for Nigeria is that for the first time, there is a targeted export which is yielding fruit.

The good news is that for the first time, there is a targeted effort in knowing exactly the nitty-gritty of domestic debts including what is owed as arrears to workers in terms of pension liabilities and the States are very happy to work with the DMO because they know it is very good for their planning. It is easy for th em to install a very good transparent  and accountable system and they are comporting on that.  So, we thank them for the interest they have shown in this respect.  We have done it for thirteen states and we will continue.

Is it possible to know the States that you have helped reconstructed their domestic debt data?
No.  It’s not advisable. Because the states that have not done there own, it is not that they are not willing, we are taking it one at a time. We cannot do all of them together. All of them are ready but we can’t do all at the same time. So, there is no need releasing these information until all the states are ready.  The states we have done are already using the information for their planning and that is the important thing.
Que: What are the effect to the economy and why are the federal government insisting on it.

Thank you very much.  You are right because if you look at $500million is really not a serious amount relative to our need to the economy.

The reasons why government is using the Bond is first of all, is to be able to establish a benchmark. That is, to pay an interest rate for the Nigerian sovereign debt for the capital market in order to facilitate the asset for the private sectors in the capital market.  Nigerian investors and private companies will like to borrow from the  international capital market for various projects in agriculture, manufacturing, power project, etc.

For them to do this it will be difficult for them if there is no Nigerian Sovereign debt.  If government does not have an instrument that is deployed at the international market because those who want to invest in a private Bond , or in a corporate bond will like to text it in order to compare what they are asking for in terms of business and what is obtainable with the Nigerian sovereign instrument. Let them know at what price the Nigerian instrument is and at what rate to sell to you to make money  as a corporate Organisation or as an individual. Therefore, the major reason on for that is to establish the Nigerian Sovereign Bond so that it can restrict private sector asset to borrow  from international capital market to fund various projects in the real sector of the economy.

The second reason of course, is that it will popularise the Nigerian currency and the Nigerian economy, because when you go to the level of the directory, of the various system, and you are looking at how other sovereign board operates, the monitoring policy of Nigeria. You are also detecting the international rejected communities in the Nigerian economy and you are making them sensitive to the Nigerian economy.

This is important because you have to be known, and if you are not present, no body remembers you if you are not present in a gathering,  So, if you look at the directory of countries involved and some of the international channels at present you will be able to see Nigeria flag in the international capital market. So, it is like mounting the Nigerian flag at the international market. Of course , one of the ambitions of Nigeria is to become the financial hub of Africa by the year 2020.  We can not be a financial hub when you do not have an international presence, and you cannot be an international champion.

If nobody knows you and if they look in the international market and they don’t see you, no body takes you serious and they will work for your debt instruments or your bond.  Even if the amount is small, it is serving some more serious purposes in terms of establishing the Nigerian presence in the international capital market so that Nigeria being the giant of Africa, we have some value and they see us more importantly to detect the aspect of our private sector.

Can we have an idea of what projects you have handled?
If you want to know the projects the budget is funding, you have the revenue and the expenditures.  You have your recurrent and capital expenditure. Now, you look for money to fund both recurrent and expenditures, so, that is how the budget works.

So in any budget, any money borrowed in future whether external or domestic for deficit budget. Any borrowed would be specific. That is an additional control that government is introducing to make sure that there is safety equilisation of money by targeting borrowed cost for central projects.
Will the N500 billion we are looking at be carried over to next year?
No, it is part of the 2010.

But we are already in November .
Yes, we spend every month.  For instance if you contract a railway project, there is an amount of money you pay the contractor and an amount you will pay him when he completed the project.  In any case, most of the capital projects may not be completed this year and will be continued next year. But most importantly there is a need that what ever project you are running withing, you get the money to run it before the end of the year.
There is a concern about rise in domestic debt.

Will you in anyway assure Nigerians that there is nothing to worry about?
The way to put is that Nigeria needs to show concern because nobody wants this country relapsed into the experience we had in the 1980s/90s when we had a problem of not paying external debt as at when due.  So, we encourage Nigerians to be concerned, and to continue asking questions, and to continue making observations so that nobody makes any mistakes of taking the country back into that type of situation again.  That is number one.

And, yes,  I assure Nigerians that there is nothing to worry about because the government has taken the first precaution when it decided that even though by international standard, our GDP ratio should be divided by  40 per cent.  Government has realised that the country should be more cautious than other countries, they decided to get its own limit of 25percent instead of 40petrcent.

And secondly, to make Nigerians understand that even the borrowing government has done domestically, it has used as a means of developing the domestic markets and to encourage the private sector to issue their own long term Bonds, to borrow money to the real sector of the economy.

In that sense, what government is saying is that we have used the opportunity to develop the market for the private sector, and progressively, government is borrowing less and less from the domestic market, and allowing the private sector to be the main borrowers from the domestic market so that they can use the fund to finances long-term growth and development.  So, government is strategising to reduce its borrowing from the domestic market while encouraging private sector to take the initiative to borrow and develop agriculture, solid minerals, power, and other critical sectors of the economy.

Would you say that money raised though Bond is being efficiently utilised?
The way to look at it is from a dynamic point of view.  Every economy is trying to improve whatever it is doing.  So, one can say that this government is ensuring that additional is met for efficient use of money whether borrowed or not borrowed money.

And that is why, recently Mr. President directed that the written guidelines foe borrowing should be reviewed, to make sure it is more efficient and more effective And more importantly, Mr President is keen on ensuring that hence forth for any borrowed and un-borrowed cost, utilisation of money have to be accounted for with a maximum value added. That means there has to be maximum value added for money. That is what the president is saying. So, it is not an issue of asking whether there is or not.

Because now, we need to improve efficience and the process and debt as well and this does not mean that you have nothing to show. Because we are using railways and power stations. Some of the power stations we are using, we know when they where in use. It is not completely correct when you say there is nothing to show for it because part of the money borrowed where borrowed 20 to 30 years ago.

Just the last question- are we in anyway using borrowed funds to finance deficit budget?
I am aware that the Budget Office and the Ministry of Finance came together last year to deliberate on the issue.  This means there is opportunity for stakeholders to come together to analyse the budget, how much is going to recurrent, how much is going to capital expenditure.  The fact is, government can not spend any money that is not appropriated.  Supplementary budget is legitimate and it is done in every country.