NIGERIA’S DEBT CREATION OFFICE
BY HENRY BOYO
In a recent document titled “Nigeria’s Debt Management Strategy 2016-19”, the Debt Management Office (DMO) expressed concern over the high risk collateral of servicing and refinancing the nation’s N8.54tn domestic debt which however, reportedly, excludes over N2.4tn outstanding obligations on CBN’s borrowing with Treasury Bills.
The DMO is clearly worried that refinancing of about 30percent (N2.56tn) of the domestic debt, which will fall due, in the next 12months, 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 11percent average on the existing total debt.”
Furthermore, the projected N984bn domestic loan in the 2016 budget would raise the already disturbing domestic debt level by over 10percent to inevitably propel debt service charges, dangerously beyond the current 35kobo from every one Naira of government’s income.
Nonetheless, the DMO is however reassuring on the sustainability of Nigeria’s current external debt of about $10bn, despite over 40percent projected increase in the 2016 budget, “because of its modest proportion of the total debt and the low interest rate and concessional terms that usually apply.” The begging question, from the preceding, however, must be why domestic interest rates, over which our own CBN has absolute control, has remained multiple times higher than the 5percent average 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 challenged economy, will ultimately make, even such cheap loans, harder to service or refinance from internally generated revenue, and serial default may invariably compromise Nigeria’s sovereignty.
This writer’s observations that DMO operations were steadily 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 piece 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 ensure judicious debt profile and restrain the level of debt and service charges at conservative levels that are considered best practice to grow our economy. Nonetheless, the fine print in the DMO’s Offer Circulars and published adverts have never actually promised that its loans would be applied to provide specific infrastructure or create more job opportunities; the DMO’s published aims, at inception, clearly relate to the intangible objectives of “deepening our nation’s debt market and setting benchmark prices for domestic debts as well as the close oversight of CBN’s management of its unyielding self-inflicted excess liquidity.”
However, in a macabre twist of logic, the Debt “Creation Office” has defended Nigeria’s galloping debt profile with the need to sensibly fund budget deficits in the last four years, when ironically, we earned billions more dollar revenue than we could spend, and therefore resorted to a constitutional aberration called excess crude account to warehouse the surplus funds, so that DMO could continue to accumulate a largely unproductive debt notwithstanding the high cost of borrowing. The question, however is, “why borrow at such 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 from turning round to re-lend your money to you for a profit? Nothing, of course, is wrong with debt accumulation if such loans were applied to enhance social and economic welfare, but a whole lot is wrong if the funds are instead raised to establish intangible, unsubstantiated promises, indicated in DMO and CBN standard offer circulars!
Curiously, in 2009, in an advertorial campaign titled “Good citizen, Good investor”, the DMO, celebrated the Agency’s alleged achievement in “The successful issuance of a 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!” Conversely, however, despite the value of domestic debt rising from N1Tn to N3Tn, billions of dollars were simultaneously disbursed from the crude account in last 4years without legislative appropriation, yet our infrastructural base, inexplicably further decayed and the real sector is regrettably now comatose, while unemployment is hazardously rife and poverty has deepened.
It smacks of odious propaganda when public attention is ‘cleverly’ directed towards the alleged superior quality of government debt instruments as “guaranteed, competitive, with ‘high’ fixed interest income” to holders rather than on the critical tangible social impacts that would evolve from loan applications. In focused economies everywhere, such government borrowings are usually directly tied to the provision of specific infrastructural facility.
Unfortunately, DMO adverts have sought 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, is that the banking sector is, actually the only cash surfeit group that government can borrow from in the present economic environment, where over 80percent of Nigerians live on less than $2/day, while the prospect of inclusive growth and economic diversification still remain hazy!!
However, the DMO's latest syndicated 2009 advert, titled “Nigeria’s External Debt: the true position” actually takes propaganda to the next level. In an earlier article in July 2009 titled “External Debt: at What Cost” see www.lesleba.com, the attention of the National Assembly was drawn to some gross inconsistencies in the cost of servicing our national debts, and one wondered why NASS approval was never sought for the several debts incurred, as constitutionally required.
Regrettably, in addition to the inappropriately high cost of sustaining the current domestic debt, it is equally worrisome that the cost of servicing our external debt should also exceed double digit rates, as inferred in former President Obasanjo’s 2007 budget which indicated that, “Total external debt stock outstanding as at the end of June 2006 stood at $4.8bn …. We have earmarked the sum of N61bn for servicing of our external debts ….” In essence, however, the projected 10percent plus external debt service charge is a clear contradiction of the promise of cheap concessional loans below 2percent from the same multilateral institutions who share well over 60percent of our current external debt; thus, it is clearly an aberration that we should require N61bn (about $500 or 12percent) to service the reported total external debt of $4.8bn in 2006?
The begging question must also be why service charges for these multilateral debts which normally attract minimal interest, remain inappropriately so high; furthermore, why did the service charge increase from N61bn to N66bn when the actual capital sum had fallen to $3bn as reported in Yar'Adua’s 2008 budget? I recall that these anomalies were discussed in several articles in my Rational Perspectives column in the Vanguard Newspaper, in 2008, and it therefore came as a surprise when Yar'Adua’s 2009 budget speech made no further overt provision for external debt service for that year, despite the subsisting indebtedness.”
Sequel to the above article written in 2009, fast forward to June 2016 and note the DMO’s lamentations on its failure to successfully manage Nigeria’s debt profile in a manner that will ensure that increasing debt and the schedule of refinancing and service changes would never pose a threat to the economy. In this event, 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.
SAVE THE NAIRA,SAVE NIGERIANS!!