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DMO: Domesticating debt legislation in states

Given that the 36 states and FCT collectively owe N4.19 trillion of domestic portions of Nigeria’s total debt stock of N32.92 trillion, the Debt Management Office (DMO) has begun a process of domesticating debt sustainability frame work. Part of the legislation is to compel every state to set up debt management agency to manage their debt efficiently, ABDULWAHAB ISA reports

As of last count, Nigeria’s total debt stock was N32 .92 trillion, according to the Debt Management Office (DMO). The figure is not inclusive of fresh foreign loan approval in the sum of $1.5 billion and €995 million granted recently by the National Assembly. To be sourced from the World Bank and Export-Import Bank of Brazil, the fresh loans are to be deployed into various purposes thrown up by COVID-19 challenges.

However, it needs to be restated that Nigeria’s total debt stock is collectively owed by the Federal Government, 36 states and the Federal Capital Territory, to various institutions. Nigeria’s rising debt stock remains a hotly debated topic. Majority are of the view that the increasing loan contraction is becoming unsustainable. The debt agency, DMO, has a different view. The agency assured that “total public debt to Gross Domestic Product as at December 31, 2020 was 21.61 per cent, a figure within the country’s new limit of 40 per cent.”

Debt stock at glance

As of December 30, 2020, DMO put Nigeria’s total debt stock at N32.92 trillion. N12.71 trillion or 38.60 per cent of the debt is external, while N20.21 trillion or 61.40 per cent of the debt is domestic. The 36 states and FCT domestic debt portion is N4.19 trillion, $4.06 billion is owed to bilateral institutions, $11.17 billion is commercial comprising Eurobonds and Diaspora Bonds, while $186.70 million is Promissory note.

The multilateral bodies are the World Bank, International Monetary Funds and G77. Bilateral institutions include, AFD, Exim Bank of China, JICA, India, and KFW. Nigeria owes IMF $3.535 billion, World Bank Group- IDA $11.123 million, IBRD $409.74 million.

For the bilateral component, Nigeria’s debt to China (Exim Bank of China) is put at $3.714 billion, France (AFD) $493.71 million, Japan (JICA) $80.20 million, India (Exim Bank of India) $37.00 million and Germany (KFW) $184.32 million.

Instructively, Nigeria’s debt obligation to China attracts relative public attention compared to other debt obligations. DMO contextualised the country’s debt to China in a recently clarified updates. The debts were contracted through China Export-Import (EXIM) Bank. According to the debt office, China loan drawn down by Nigeria is $3.714 billion as at December 31, 2020. DMO noted that $449.89 million had been repaid from the principal, $391.66 million as interest, leaving an outstanding of $3.264 billion. Breaking down the facility, it said Nigerian Railway Modernisation Project (Lagos-Ibadan section) loan of $1. 267 billion contracted on August 18, 2017 stood out as the single largest facility from the Chinese to the country.

It has 2.5 per cent interest rate and a grace period of seven years and a tenor of 20 years, thereby maturing in September 2037 $884.27 million representing 69.77 per cent disbursed while $29.82 million has been paid back as interest. The series of loans started with the Nigerian-Communications-Satellite $200 million facility signed on January 12, 2006 with three per cent and a grace period of five years.

The loan with maturity date of June 29, 2018 had been fully repaid. There was also the Nigerian National Public Security Communication System project loan of $399.5 million with 2.5 per cent interest contracted in 2012. It had a grace period of seven years and 20-year tenor. It will mature on September 21, 2030. According to the debt agency, the entire $399.5 million was fully drawn down. Total payment of principal as at December 2020 was $92.19 million and interest of $89.04 million, leaving a total outstanding at $307.31 million. The Nigerian Railway Modernisation Project (Idu- Kaduna section) loan of $500 million was similarly contracted in 2010.

With an interest rate of 2.5 per cent and seven years grace period, it will mature on September 21, 2030. It has been fully drawn down, with an outstanding payment of $384.62 million. The Abuja Light Rail project loan of $500 million was contracted in 2012 with similar terms of 2.5 per cent interest rate, grace period of seven years and a tenor of 20 years. It had been fully drawn down. Only $38.46 million and $ 66.78 million have been paid on principal and interest, leaving an outstanding of $461.54 million. There are four facilities, which have not been drawn down.

They include Nigerian 40 Parboiled Rice Processing Plants Project (Federal Ministry of Agriculture & Rural Development) ($325.67 million); Nigeria Supply of Rolling Stocks and Depot Equipment for Abuja Light Rail Project ($ 157 million); Nigeria Greater Abuja Water Supply Project ($381.09 million); Nigerian Four Airport Terminal Expansion Project Ancillary Project, ($183.62 million); the additional loans for Nigerian Four Airport Expansion Project and Nigerian ICT Infrastructure Backbone Project, ($208.90 million); and the Nigerian ICT Infrastructure Backbone Phase II Project (CRY2.300 billion).

Domesticating debt legislation

The 36 states and the Federal Capital Territory (FCT) collectively earn a portion in the country’s debt stock. DMO put total debt of 36 states and FCT at N4.19 trillion. Regrettably, some states don’t have enabling legislation for debt sustainability management.

Domestic borrowing from the capital market by the states, FCT and their agencies is guided by the requirements of the Investments and Securities Act (ISA), 2007, and any other legislation. According to the rule, any borrowing by states and the FCT must specify the amount to be raised, plan for its utilisation, means of repayment, and the inclusion of the purpose for the borrowing in the state’s or FCT’s appropriation law or other laws. In addition, there must be approval of the State Executive Council duly signed by the Secretary to the State Government; resolution of the State House of Assembly duly signed by the Clerk and approval of the FCT Executive Committee duly signed by the Secretary and FCT Minister, in case of the FCT.

As one of the implementing agencies of States Fiscal Transparency, Accountability and Sustainability (SFTAS), a programme DMO is coordinating with the World Bank, the Federal Government, the 36 state and DMO held SFTAS workshop last month for the states. The programme was held virtually with all 36 states and FCT participating online. DMO’s Director- General, Ms. Patience Oniha, said 23 states had already enacted laws and fiscal frameworks in their respective states and by extension earned the SFTAS World Bank grant associated with this DLI 7. She said DMO was committed to ensuring the remaining 13 states meet requirement.

“We expect that at the end of this workshop, states will have clear understanding of the requirements of state debt legislation and the institutional frameworks required for efficient debt management operations, whose objective, is to ensure borrowing is prudent and debt is sustainable,” she said. Shedding lights on advantages for states having fiscal policy, debt laws in their respective domain, the DG said: “You know we have a DMO Act, a set of law, which governs our operations. We want them to have those laws. DMO cannot just say we want to borrow.

There are practices that have to be complied with. And that law is the law setting up the DMO as an institution. If they have those laws, it means they will have institutions, function of the institutions; borrowing relationship even though those are governs largely by fiscal responsibility Act.

“DMO is one of the institutions because of the experience we have gathered over the years coupled with the fact that we have been working with the state governments and the FCT. We are assigned with the responsibility of implementing three targets, which I called disbursement linked indicators,” she said.

Debt sustainability question

There has been a conversation sketch around the country’s debt sustainability. The conversation aroused more interest given the recent surge in government’s borrowings to address COVID-19 challenges. COVID-19-instigated borrowings were to meet critical healthcare, infrastructure and economic welfare of the citizens. Government, in many fora, defended sustainability of the current debt stock.

In a response to that effect recently, Minister of Finance Budget and National Planning, Mrs. Zainab Ahmed, insisted that the nation’s debt stock was not only sustainable, but comparatively a good one, adding that government worries about debt servicing not sustainability. She stated this during a chat with International Monetary Funds (IMF) Africa Department, Mr. Abebe Selassie. Ahmed commended World Bank Group, Group of Twenty (G20) for debt service suspension initiative (DSSI) initiated recently. Government, Ahmed reiterated, was committed to debt sustainability.

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