There are concerns by Nigerians and other stakeholders over the nation’s debt profile. But the Director General of the Debt Management Office (DMO), Dr. Abraham Nwankwo, insists that Nigeria’s debts are sustainable as there is no fear of any crisis. He spoke exclusively to Snr Correspondent, EFE EBELO. Excerpts:
Nigerians are alarmed that the debt profile of the country is rising, can you give an explanation?
Nigerians are right to say that public debt stock is rising, so we are not in any disagreement with Nigerians that the debt stock is rising. The general public, all our stakeholders are right in their observations and the second point to make is that we are encouraged by the interest the general public and our stakeholders have on the issue of public debt management so we encourage them to continue observing, to continue making suggestions, to continue giving advise and guidance, we accept that.
However, what the DMO attempts to explain is yes, the debt stock is rising and so also is the country’s GDP and we try to emphasis that in public debt management as in most other aspects of business whether it is public business or private you don’t rate variables in isolation, you relate variables one to another. For example, in public debt management, we relate the debt stock to the GDP or to revenue for example. We also relate debt service to GDP, we relate debt service to revenue and we relate external debt service to export earnings. All these go together, so in managing businesses, whether public business or private, you deal with ratios. For example, the Chief Financial Officer of a private company does not need to go to the board to tell them their revenue has risen, he would have said next to nothing, or to tell them that the money they borrowed from banks has risen, he would have said next to nothing. Rather he would relate the debt to equity, how much are they depending on borrowing from banks and other sources and how is that relating to their equity that is the leverage ratio.
He will relate to the other ratios like cash ratio, profitability ratio, return on investment, all these are ratios. It will be wrong for you to mention one variable without relating it to the size of other variables when you are managing any business because as I said, whether public or private. So that is the only clarification we make to Nigerians that we do not relate just debt stock of itself, but have to be relating it to something, that is one point. However, there is another point of strong agreement we have with the Nigerian public and other stakeholders and that is that the government agrees completely that the proceeds of borrowing whether domestic or external sources, should be used judiciously and effectively. There should be no wastage or at the worst, the wastage or leakage has to be minimised so that there is maximum value for money. So that there is maximum generation of growth and maximum generation of employment so that going forward cumulatively, resources must be used in such a way as to reduce poverty.
So, government agrees and that is why the administration of President Goodluck Jonathan is committed to continue ensuring monitoring and evaluation in the projects government is handling and that is why most of the borrowing we are doing recently are tied to projects. That is why for example money borrowed from the International Capital Market (ICM) Eurobond is tied to power sector infrastructure. So, government is in complete agreement with the general public and all stakeholders on the issue that if and when government borrows, the proceeds must be used efficiently, effectively, transparently and should be accounted for, so the Nigerian public are quite right.
Is there no cause for alarm?
No, there is no cause for alarm because as we have always explained to Nigerians, our debt continues to be sustainable. But sustainability in the Nigerian situation has to be related to the peculiarities of our own economy and that is why we continue to emphasise that it is not beyond statistical debt sustainability, government is laying emphasis on value for money and government is laying emphasis that yes, even if there is a particular threshold, for example debt to GDP ratio that is the standard for countries in our peer group, because we appreciate the peculiarities of the Nigerian economy and appreciate that our foreign exchange earnings is concentrated on one source, oil and gas, we appreciate that oil and gas is subject to frequent volatilities in international capital market, we always decide to be conservative. Nigeria does not aim at that threshold set for its peer group, rather, it attempts always to have a threshold which is much lower than the one set for countries in our peer group.
What is the threshold for the countries in our peer group?
The threshold for the countries in our peer group in terms of debt to GDP ratio has been changed from 40 to 56 per cent. However, even when it was 40, Nigeria limited itself to using 30 as its own threshold, not that it must reach 30 instead of using 40. Now that it has been raised by the International standard from 40 to 56, we are still restraining ourselves as if 30 is our own threshold. It is not that we are aiming that we must reach 30, but we still use it as our own threshold, so that shows you how conservative the present administration is as far as public debt management is concerned in terms of borrowing. We do not want to borrow for borrowing sake, rather government is keen that we have diversified sources of revenue, that the tax base increases, that those who produce and earn revenue should be able to pay taxes, and the need and pressure to borrow, will be less.
Why do you think the threshold for the countries in our peer group was increased?
As you know, Nigeria had moved from lower income country to a middle low income country. So Nigeria in terms of our GDP, in terms of our per capita income, in terms of our overall performance, our economy is maturing and international experts globally are appreciating that Nigeria is emerging, is moving forward. It is not a strictly under developed economy, it is trying to move forward. So, in terms of income level, in terms of economic maturity, maturity of our bond markets, in terms of having the right institutions and structures. The reforms that have been going on, the Transformation Agenda, is ensuring that Nigeria is moving from a very low level to a relatively high level and to that extent, we have moved from a group that is considered to be higher in terms of economic performance. And that is why government is laying emphasis that if we are being appreciated as moving forward, we must deal very seriously and very dedicatedly with the issues of making sure that these progress that were claimed to be registering is shown in the welfare of the people. That is why the government has been emphasising that yes we have been having growth, but we are making sure now that the growth process is focused on employment generation, in poverty reduction and welfare. This is because when you generate more employment, you are reducing poverty because more people will earn income and be able to solve their needs and those of their friend and relations. So, government is laying emphasis that yes we seem to be making progress in terms of microeconomic stability, in terms of strong institutions in terms of output, but let us make sure that we organise this growth in such a way that there is maximum inclusion, let more Nigerians be part of this progress that we are making. And that is why there is a lot of emphasis for example on power because government appreciates that hopefully in the next two to three years when the power situation would have been obviously changed for the better in terms of the quantum and the stability of power supply.
The hair dresser, the barber, the tailor, all sorts of Small and Medium Enterprises will now be in a position to pursue their business with vigour, without interruption, with more output and be able to create wealth for themselves. So, it also means that the bigger companies that are presently operating at fractional capacities will now be able to operate at near full capacity, so they will employ more people. Government is focusing on those things that need to be tackled so that the growth is inclusive, so that more and more people whether in the private sector, or the public are participating in this progress, that is the emphasis.
Now that we have been reclassified, is this growth sustainable in the face of dwindling oil prices?
The reclassification of Nigeria has nothing to do actually with oil revenue. As you know, agriculture accounts for about 40 per cent of our GDP, oil accounts for much less. Oil is important for Nigeria because it is the main source of foreign exchange earnings and it is the major source of revenue for government and because over the years, the economy has been structured in such a way that government is the main driver of the economy. That is why oil seems important because it is the main source of foreign exchange and the main source of government revenue and therefore everyone tends to depend on government for employment and others , so that is why oil is important. But ideally speaking, it should not be so, we should depend on many sources for foreign exchange earnings, we should have many sources of revenue for government and taking advantage of the fact that even now, agriculture is still the dominant sector in terms of contribution to GDP, employment among others. That is why government is laying emphasis on taking advantage and converting the comparative advantage we have in agriculture to a competitive advantage. That is why agriculture is being modernised and the Federal Ministry of Agriculture is pursuing lots of initiatives both institutional, structural and procedural that are leading to improvements in yields, that are encouraging younger people and the old people to also go to the farm.. Already, in terms of the structure of GDP, Nigerian economy is well diversified, oil is not the dominant sector in GDP, it is Agriculture and solid minerals is coming up, services are coming up, and the telecoms are coming up.
Even in the oil sector, the strategy of government is to make sure that the oil and gas are being converted within the country in terms of making sure they are used for various petrochemicals productions including producing things like fertilisers and all of that and this way the economy will be diversified and this way we will take advantage of the oil and gas we have not just as a source of foreign exchange but as a base for developing and diversifying the domestic economy.
The recent Eurobond floated by the country in ICM was oversubscribed; can you briefly tell us what this is all about and what it means for us as a country?
Essentially, Eurobond is the bond you issue in the ICM, usually, it is dollar denominated to be able to raise money from very knowledgeable, very discerning fund managers and other financial institutions and there are many sources of funds you can borrow from, domestic sources and also from external sources. When it comes to borrowing from external sources, you can borrow from banks particularly multi lateral financial institutions like the World Bank, the various windows of the World Bank, the Africa Development Bank, the International Fund for Agricultural development, the Islamic Development Bank and such other sources, you can borrow from them. However, you could also go to the ICM and issue a bond and it is open for as many fund managers as possible, you are not going to anybody to say you want to borrow, you are throwing it to all qualified lenders to say look, I have a good offer, could you participate in my bond, I will give you a piece of paper which is an IOU a promise to pay at a future date and at a particular interest rate that will be determined by the market in exchange for you to give me some money now to solve a particular problem. So that is the Eurobond essentially.
Our first Eurobond Issue was in January 2011 where we raised $500million dollars and then because of the continued need for us to fund specific projects, the government decided for us to issue a $1billion Eurobond this year which we effected on July 2, 2013 in two tranches of $500million, five years and 10 years respectively. The purpose of this is to be able to help fund our gas to power infrastructure. As part of the master plan for the power sector, to make sure power is available, government is making sure that there is adequate power supply so that the companies that have been sold to the private sector under the privatisation programme have the raw materials they need to generate sufficient power. Therefore, the government proposed and the National Assembly approved for $1billion to be raised for the purpose of developing gas to power infrastructure.
Given the problems we have as a country, Why do you think these bonds offer have been so successful?
People are rushing to indicate that it is a way of endorsing the Transformation Agenda, a way of endorsing the progress being made by the Nigerian government and the Nigerian people in restructuring the economy in addressing the various challenges that exist. It does not mean the investors are saying that Nigeria is now haven where there is no problem, no, it only shows that they believe that just like every country that has challenges, in the case of Nigeria, it is taking the appropriate steps, the right steps to addressing these problems. In some areas, there are visible achievements that have been made over the past two years in terms of registering progress. For example, the power sector has been successfully privatised and there is every expectation that in the next two to three years, the power supply configuration in Nigeria would have changed so dramatically that people will not remember that we have these serious challenges now. I believe that the type of changes that are taking place in agriculture are very commendable and sustainable and that in the next few years, Nigeria will be self sufficient in various food items particularly in such crops like rice. They know that in the next few years, Nigeria which is already the largest producer of cassava will be able to add value to its cassava output in terms of processing and it is becoming an important export item of the country. They are noting the progress being made in infrastructure, the dedicated efforts being made in reconstructing the roads, they are taking into account that the rail lines have been revived and plans are on in the next 24 months to revive more of the lines.
They are taking into account that the aviation sector is changing, there is massive refurbishing and facelift for all our airports, they are taking into accounts that there are plans to build at least five more airports with capacity to handle cargo and the airport that are linked to the base of the economy. These airports are being fashioned in such a way that the crops being produced in the remote areas can find access to the airports and easily moved to the international market where they will earn value for the poor farmers in the village. So, they are taking into account the systematic transformation of the Nigerian economy going on now.
One area where you have worked so hard since you came on board is having a National Debt data base. Have you been able to achieve this?
Yes we have. The major problem that existed was not having a reliable domestic data of the states of the federation and FCT. Five years ago we established a programme for establishing Debt Management Departments in all states and FCT and as part of establishing that programme was to reconstruct the domestic debt of each state and FCT. It is important to mention that this programme is very ambitious and and required the support of the president who was Chairman of DMO advisory board when he was still vice president. It was under him that the programme was approved.
Source: BusinessNews
Link: http://businessnews.com.ng/2013/08/05/nigerias-debts-are-sustainable-dmo/?utm_source=dlvr.it&utm_medium=twitter&utm_campaign=nigerias-debts-are-sustainable-dmo
Nigerians are alarmed that the debt profile of the country is rising, can you give an explanation?
Nigerians are right to say that public debt stock is rising, so we are not in any disagreement with Nigerians that the debt stock is rising. The general public, all our stakeholders are right in their observations and the second point to make is that we are encouraged by the interest the general public and our stakeholders have on the issue of public debt management so we encourage them to continue observing, to continue making suggestions, to continue giving advise and guidance, we accept that.
However, what the DMO attempts to explain is yes, the debt stock is rising and so also is the country’s GDP and we try to emphasis that in public debt management as in most other aspects of business whether it is public business or private you don’t rate variables in isolation, you relate variables one to another. For example, in public debt management, we relate the debt stock to the GDP or to revenue for example. We also relate debt service to GDP, we relate debt service to revenue and we relate external debt service to export earnings. All these go together, so in managing businesses, whether public business or private, you deal with ratios. For example, the Chief Financial Officer of a private company does not need to go to the board to tell them their revenue has risen, he would have said next to nothing, or to tell them that the money they borrowed from banks has risen, he would have said next to nothing. Rather he would relate the debt to equity, how much are they depending on borrowing from banks and other sources and how is that relating to their equity that is the leverage ratio.
He will relate to the other ratios like cash ratio, profitability ratio, return on investment, all these are ratios. It will be wrong for you to mention one variable without relating it to the size of other variables when you are managing any business because as I said, whether public or private. So that is the only clarification we make to Nigerians that we do not relate just debt stock of itself, but have to be relating it to something, that is one point. However, there is another point of strong agreement we have with the Nigerian public and other stakeholders and that is that the government agrees completely that the proceeds of borrowing whether domestic or external sources, should be used judiciously and effectively. There should be no wastage or at the worst, the wastage or leakage has to be minimised so that there is maximum value for money. So that there is maximum generation of growth and maximum generation of employment so that going forward cumulatively, resources must be used in such a way as to reduce poverty.
So, government agrees and that is why the administration of President Goodluck Jonathan is committed to continue ensuring monitoring and evaluation in the projects government is handling and that is why most of the borrowing we are doing recently are tied to projects. That is why for example money borrowed from the International Capital Market (ICM) Eurobond is tied to power sector infrastructure. So, government is in complete agreement with the general public and all stakeholders on the issue that if and when government borrows, the proceeds must be used efficiently, effectively, transparently and should be accounted for, so the Nigerian public are quite right.
Is there no cause for alarm?
No, there is no cause for alarm because as we have always explained to Nigerians, our debt continues to be sustainable. But sustainability in the Nigerian situation has to be related to the peculiarities of our own economy and that is why we continue to emphasise that it is not beyond statistical debt sustainability, government is laying emphasis on value for money and government is laying emphasis that yes, even if there is a particular threshold, for example debt to GDP ratio that is the standard for countries in our peer group, because we appreciate the peculiarities of the Nigerian economy and appreciate that our foreign exchange earnings is concentrated on one source, oil and gas, we appreciate that oil and gas is subject to frequent volatilities in international capital market, we always decide to be conservative. Nigeria does not aim at that threshold set for its peer group, rather, it attempts always to have a threshold which is much lower than the one set for countries in our peer group.
What is the threshold for the countries in our peer group?
The threshold for the countries in our peer group in terms of debt to GDP ratio has been changed from 40 to 56 per cent. However, even when it was 40, Nigeria limited itself to using 30 as its own threshold, not that it must reach 30 instead of using 40. Now that it has been raised by the International standard from 40 to 56, we are still restraining ourselves as if 30 is our own threshold. It is not that we are aiming that we must reach 30, but we still use it as our own threshold, so that shows you how conservative the present administration is as far as public debt management is concerned in terms of borrowing. We do not want to borrow for borrowing sake, rather government is keen that we have diversified sources of revenue, that the tax base increases, that those who produce and earn revenue should be able to pay taxes, and the need and pressure to borrow, will be less.
Why do you think the threshold for the countries in our peer group was increased?
As you know, Nigeria had moved from lower income country to a middle low income country. So Nigeria in terms of our GDP, in terms of our per capita income, in terms of our overall performance, our economy is maturing and international experts globally are appreciating that Nigeria is emerging, is moving forward. It is not a strictly under developed economy, it is trying to move forward. So, in terms of income level, in terms of economic maturity, maturity of our bond markets, in terms of having the right institutions and structures. The reforms that have been going on, the Transformation Agenda, is ensuring that Nigeria is moving from a very low level to a relatively high level and to that extent, we have moved from a group that is considered to be higher in terms of economic performance. And that is why government is laying emphasis that if we are being appreciated as moving forward, we must deal very seriously and very dedicatedly with the issues of making sure that these progress that were claimed to be registering is shown in the welfare of the people. That is why the government has been emphasising that yes we have been having growth, but we are making sure now that the growth process is focused on employment generation, in poverty reduction and welfare. This is because when you generate more employment, you are reducing poverty because more people will earn income and be able to solve their needs and those of their friend and relations. So, government is laying emphasis that yes we seem to be making progress in terms of microeconomic stability, in terms of strong institutions in terms of output, but let us make sure that we organise this growth in such a way that there is maximum inclusion, let more Nigerians be part of this progress that we are making. And that is why there is a lot of emphasis for example on power because government appreciates that hopefully in the next two to three years when the power situation would have been obviously changed for the better in terms of the quantum and the stability of power supply.
Now that we have been reclassified, is this growth sustainable in the face of dwindling oil prices?
The reclassification of Nigeria has nothing to do actually with oil revenue. As you know, agriculture accounts for about 40 per cent of our GDP, oil accounts for much less. Oil is important for Nigeria because it is the main source of foreign exchange earnings and it is the major source of revenue for government and because over the years, the economy has been structured in such a way that government is the main driver of the economy. That is why oil seems important because it is the main source of foreign exchange and the main source of government revenue and therefore everyone tends to depend on government for employment and others , so that is why oil is important. But ideally speaking, it should not be so, we should depend on many sources for foreign exchange earnings, we should have many sources of revenue for government and taking advantage of the fact that even now, agriculture is still the dominant sector in terms of contribution to GDP, employment among others. That is why government is laying emphasis on taking advantage and converting the comparative advantage we have in agriculture to a competitive advantage. That is why agriculture is being modernised and the Federal Ministry of Agriculture is pursuing lots of initiatives both institutional, structural and procedural that are leading to improvements in yields, that are encouraging younger people and the old people to also go to the farm.. Already, in terms of the structure of GDP, Nigerian economy is well diversified, oil is not the dominant sector in GDP, it is Agriculture and solid minerals is coming up, services are coming up, and the telecoms are coming up.
Even in the oil sector, the strategy of government is to make sure that the oil and gas are being converted within the country in terms of making sure they are used for various petrochemicals productions including producing things like fertilisers and all of that and this way the economy will be diversified and this way we will take advantage of the oil and gas we have not just as a source of foreign exchange but as a base for developing and diversifying the domestic economy.
The recent Eurobond floated by the country in ICM was oversubscribed; can you briefly tell us what this is all about and what it means for us as a country?
Essentially, Eurobond is the bond you issue in the ICM, usually, it is dollar denominated to be able to raise money from very knowledgeable, very discerning fund managers and other financial institutions and there are many sources of funds you can borrow from, domestic sources and also from external sources. When it comes to borrowing from external sources, you can borrow from banks particularly multi lateral financial institutions like the World Bank, the various windows of the World Bank, the Africa Development Bank, the International Fund for Agricultural development, the Islamic Development Bank and such other sources, you can borrow from them. However, you could also go to the ICM and issue a bond and it is open for as many fund managers as possible, you are not going to anybody to say you want to borrow, you are throwing it to all qualified lenders to say look, I have a good offer, could you participate in my bond, I will give you a piece of paper which is an IOU a promise to pay at a future date and at a particular interest rate that will be determined by the market in exchange for you to give me some money now to solve a particular problem. So that is the Eurobond essentially.
Our first Eurobond Issue was in January 2011 where we raised $500million dollars and then because of the continued need for us to fund specific projects, the government decided for us to issue a $1billion Eurobond this year which we effected on July 2, 2013 in two tranches of $500million, five years and 10 years respectively. The purpose of this is to be able to help fund our gas to power infrastructure. As part of the master plan for the power sector, to make sure power is available, government is making sure that there is adequate power supply so that the companies that have been sold to the private sector under the privatisation programme have the raw materials they need to generate sufficient power. Therefore, the government proposed and the National Assembly approved for $1billion to be raised for the purpose of developing gas to power infrastructure.
Given the problems we have as a country, Why do you think these bonds offer have been so successful?
People are rushing to indicate that it is a way of endorsing the Transformation Agenda, a way of endorsing the progress being made by the Nigerian government and the Nigerian people in restructuring the economy in addressing the various challenges that exist. It does not mean the investors are saying that Nigeria is now haven where there is no problem, no, it only shows that they believe that just like every country that has challenges, in the case of Nigeria, it is taking the appropriate steps, the right steps to addressing these problems. In some areas, there are visible achievements that have been made over the past two years in terms of registering progress. For example, the power sector has been successfully privatised and there is every expectation that in the next two to three years, the power supply configuration in Nigeria would have changed so dramatically that people will not remember that we have these serious challenges now. I believe that the type of changes that are taking place in agriculture are very commendable and sustainable and that in the next few years, Nigeria will be self sufficient in various food items particularly in such crops like rice. They know that in the next few years, Nigeria which is already the largest producer of cassava will be able to add value to its cassava output in terms of processing and it is becoming an important export item of the country. They are noting the progress being made in infrastructure, the dedicated efforts being made in reconstructing the roads, they are taking into account that the rail lines have been revived and plans are on in the next 24 months to revive more of the lines.
They are taking into account that the aviation sector is changing, there is massive refurbishing and facelift for all our airports, they are taking into accounts that there are plans to build at least five more airports with capacity to handle cargo and the airport that are linked to the base of the economy. These airports are being fashioned in such a way that the crops being produced in the remote areas can find access to the airports and easily moved to the international market where they will earn value for the poor farmers in the village. So, they are taking into account the systematic transformation of the Nigerian economy going on now.
One area where you have worked so hard since you came on board is having a National Debt data base. Have you been able to achieve this?
Yes we have. The major problem that existed was not having a reliable domestic data of the states of the federation and FCT. Five years ago we established a programme for establishing Debt Management Departments in all states and FCT and as part of establishing that programme was to reconstruct the domestic debt of each state and FCT. It is important to mention that this programme is very ambitious and and required the support of the president who was Chairman of DMO advisory board when he was still vice president. It was under him that the programme was approved.
Source: BusinessNews
Link: http://businessnews.com.ng/2013/08/05/nigerias-debts-are-sustainable-dmo/?utm_source=dlvr.it&utm_medium=twitter&utm_campaign=nigerias-debts-are-sustainable-dmo
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