The Debt Management Office (DMO) should stop the debt issuance, given Nigeria’s rising debt profile, the Director-General, West African Institute for Financial and Economic Management (WAIFEM), Prof Akpan Ekpo, has said.
“There should be a temporary halt for debt issuance. We also need to monitor our external borrowings,” he added.
The WAIFEM provides support for Nigeria’s Debt Sustainability Analysis conducted yearly by the DMO.
Data obtained from DMO shows that Nigeria’s domestic and external debt stocks stand at N12.06 trillion as at March 31.
Ekpo told The Nation that the Debt Office needs to be more innovative in issuing bonds, adding that states should also slow down on debt issuance.
He said the practice where most of the commercial banks buy the issued bonds, make their margins and declare huge profits does not benefit the economy.
Ekpo also added that the practice where the government borrows to pay salaries is not only worrisome, but dangerous for the economy.
The DMO regularly issues bond instruments which create more debts for the economy. Last Wednesday, the DMO sold bonds worth N60 billion at lower yields on all tenors. In a statement, it said investors submitted total bids of N183.34 billion compared with N184.72 billion it received at the previous auction.
The lower yields reflected the trend in the secondary market, which remained at below 14 per cent, following a sharp rise immediately after the peaceful elections in March. The five-year, 10-year and 20-year tenors each received a total of N20 billion, DMO said.
The five-year paper was sold at 13.84 per cent, lower than 14.44 per cent it during last month’s auction. The 10-year bond fetched a yield of 13.48 per cent against 14.22 per cent last month, while the 20-year debt attracted a yield of 13.88 per cent compared with 14.45 per cent last month.
But the concerns of most Nigerians is that in most cases, the raised funds are not channeled into building viable infrastructure that supports economic growth and development but ends up being wasted in frivolous projects.
Ekpo explained that in 2004, Nigeria’s debt stock amounted to about $46.6 billion, which comprised $35.9 billion of external debt and $10.7 billion of domestic debt. He said high debt service costs on Nigeria’s $30.4 billion Paris Club debt had tremendously strained government public finances, crowding out space, for other necessary social expenditure and investments in public infrastructure.
However, he said as part of the successful debt negotiation process with the Paris Club, Nigeria paid its creditors outstanding arrears of $6.4 billion, received debt write – off of $16 billion on the remaining debt stock (under Naples terms), and purchased its outstanding $8 billion debt under a buy back agreement at 25 percent discount for $6 billion.
The debt relief package totalled $18 billion, or a 60 per cent write-off in return for $12.4 billion payment of arrears and buyback.
He said the exercise involving the buyback was unprecedented and represented an “unnatural” solution under the Paris Club protocol for a low-income country; it was the second largest – debt relief operation in the club’s 50–year history. Such was the debt exit deal that succeeded in eliminating Nigeria’s external debt overhang syndrome.
The DMO was established on October 4, 2000 to coordinate the management of Nigeria’s debt, which was being done by various establishments. This diffused debt management strategy led to inefficiencies.
It was expected that the coming of DMO would lead to good debt management practices that make positive impact on economic growth and national development, particularly in reducing debt stock and cost of public debt servicing in a manner that saves resources for investment in poverty reduction programs.
The body is also expected to prudently raise financing to fund government deficits at affordable costs and manageable risks in the medium- and long-term; achieve positive impact on overall macroeconomic management, including monetary and fiscal policies; avoid debt crisis and achieving an orderly growth and development of the national economy.
It is also expected to improve the nation’s borrowing capacity and its ability to manage debt efficiently in promoting economic growth and national development; project and promote a good image of Nigeria as a disciplined and organised nation, capable of managing its assets and liabilities; provide opportunity for professionalism and good practice in nation building.
