Nigeria’s Debt Creation Office | Independent Newspapers Limited
Newsletter subscribe


Nigeria’s Debt Creation Office

Posted: Jul 7, 2016 at 2:00 am   /   by   /   comments (0)




In a recent document titled “Nigeria’s Debt Management Strategy 2016-19”, the Debt Management Office (DMO) expressed concern on the high risk collateral of servicing and refinancing the nation’s N8.54tn domestic debt which reportedly excludes over N2.4tn outstanding obligations on CBN’s sales of Treasury Bills.

The DMO is clearly worried that refinancing of about 30% (N2.56tn) of the domestic debt, which will fall due, in the next 12 months, poses a threat to the economy because maturing debts will have to be refinanced at market rates which could be oppressively higher than the almost 11% average of existing debt.”

Furthermore, the projected N984bn domestic loan in the 2016 budget would raise this already disturbing domestic debt level by over 10% to propel debt service charges, dangerously beyond the current 35kobo from every one Naira of internally generated revenue by government.

Nonetheless, the DMO is however reassuring on the sustainability of Nigeria’s external debts, “because of its modest proportion of total debt and the low interest rate and concessional terms that apply.” The begging question, from the preceding, however, is why domestic interest rates, over which our own CBN has control, has remained multiple times higher than the average 5% rate that is available in successful economies. Albeit, the Finance Minister should be wary of so called cheaper external loans, as further Naira devaluation in a non productive economy will ultimately make, even such cheap loans, harder to service or refinance from internally generated revenue, while serial default may ultimately compromise our sovereignty.

This writer’s observations that DMO operations were fostering another round of unsustainable debts were captured in several articles, including a twin article published in September 2009, titled “Nigeria’s Debt Creation Office 1&2;” an abridged narrative of that article is as follows:

“Lately, my attention has been drawn to the exhibition of a trait of propaganda by the DMO, which was established under former President Obasanjo to guard against the costly mistakes of the past and provide a sustainable template that will direct judicious application of loans and also restrain the level of debt and service charges at optimal levels that are considered best practice to grow our economy. Nonetheless, the fine print content of the DMO’s offer circulars and published adverts have never actually promised that its loans would directly support infrastructure or create more job opportunities; the DMO’s published aims clearly relate to the intangible objectives of “deepening our nation’s debt market and setting benchmark prices for domestic debts and close control of CBN’s unyielding self-inflicted excess liquidity.” 

“In a macabre twist of logic, our Debt Creation Office defends the galloping debt with the need to sensibly fund budget deficits within four years, when ironically we earned more dollar revenue than we could spend, and therefore resorted to a constitutional aberration called excess crude account to warehouse these funds, despite further accumulation of unproductive debt. The question is, “why borrow with a high cost to cover budget deficits, when you have surplus and idle deposits which attract little or no return?”  Indeed, what stops (both foreign & local) beneficiary banks of your idle deposits to turn round and re-lend you your money? Nothing, of course, is wrong with debts accumulation if these loans were applied to enhance social and economic welfare, but a whole lot is wrong if the funds are instead applied for intangible, unsubstantiated promises, indicated in DMO and the CBN offer circulars!

Curiously, in an advertorial titled “Good citizen, good investor” the DMO, celebrated the Agency’s presumed success for “The successful issuance of the 20-year Bond” as “a manifestation of the Emerging Nigerian Spirit to surmount all obstacles and achieve lofty goals. “INVEST IN FGN Bonds” the adverts screamed!” Inexplicably, despite the tripled value of domestic debt in recent years, our infrastructural base has further decayed and the real sector is regrettably now comatose, while unemployment is rife.

It smacks of self adulation and odious propaganda when public attention is ‘cleverly’ directed towards the alleged superior quality of government debt as “guaranteed, competitive, with ‘high’ fixed interest incometo the holder rather than on the purpose or social benefits that would evolve from the loan application.  In focused economies everywhere, such government borrowings are directly tied to specific projects, such as Power Stations, mass housing, and provision of educational or mass transit infrastructure.

Unfortunately, DMO adverts seek to massage the ego of Nigerian investors, as contributors “to economic growth and employment, thereby helping to reduce poverty, whilst fostering a diversified and self-sustaining economy”. The truth, of course is that the banking sector is, actually the only cash surfeit group that government can borrow from in our present economic environment, where over 80% of Nigerians live on less than $2/day!!

However, the DMO’s latest syndicated advert titled “Nigeria’s External Debt: the true position” actually takes the art of propaganda to the next level.  In an earlier article in July 2009 titled “External Debt: at What Cost”, the attention of the National Assembly was drawn to some gross inconsistencies in the cost of servicing our national debts, and wondered why NASS approval was never sought for the several debts incurred, as constitutionally required since the DMO was created.

Nonetheless, in addition to the high cost of domestic debt, it is equally worrisome that the cost of servicing our external debt should also exceed double digit rates, as former President Obasanjo’s 2007 budget indicated that, “Total external debt stock outstanding as at the end of June 2006 stood at $4.8bn … made up of London Club $1.4bn, multilateral debts $2.7bn, promissory notes $0.6bn, other non-Paris-Club debts US$0.1bn.  We have earmarked the sum of N61bn for servicing of our external debts ….”. In essence the 10% plus service charge is a clear contradiction of the notion of cheap concessional loans below 2% from multilateral institutions. For example, why should N61bn (about $500bn) or 12% be required to service the total external debt of $4.8bn in 2006?

The begging questions here are, why the service charges for these multilateral debts which normally attract minimal interest, remain inappropriately so high, and why did the service charge increase from N61bn to N66bn when the actual capital sum decreased to $3bn in 2008, as indicated in Yar’Adua’s 2008 budget? I recall that these anomalies were discussed in several articles in this column in 2008, and it was therefore a surprise when Yar’Adua’s 2009 budget speech made no overt provision for external debt service.

The National Assembly should be more alert and take a closer look at the relevance and effectiveness of the involvement of Debt Management Office in further debt creation to preempt our steady descent into another death trap.