When the red carpet will be rolled out in Abuja on Friday, January 10, 2014, for Namadi Sambo, vice president, members of the political class and other eminent personalities for the re-launch of the review report of Debt Management in Nigeria, it will afford the guests the opportunity of listening to the contributions of the Debt Management Office (DMO) to the development of the nation’s economy.
The DMO established in 2000 is working in accord with the government’s transformation agenda, and it is now rated the top in Africa and second only to South Africa.
In addition, it has also been involved in the progress made by various state governments in debt management while ensuring that stronger debt management is a critical ingredient in improving the country’s macroeconomic performance and that its credibility as a reformer and its creditworthiness on international markets are maintained.
The Centre for the Study of Economies in Africa (CSEA), the organisers of the January 10 event, said the quality of debt management in Nigeria had been transformed from a near-no-debt management to a reasonably well functioning domestic government bond market.
According to CSEA, “Nigerian bonds are included in major bond indexes of emerging markets and the yield on the bonds in the Eurobond market is lower than that of a number of developed countries.”
A critical appraisal of debt management in the country over a decade showed that Nigeria achieved a major debt deal with the Paris Club and the private creditors of the London Club in 2005, and has continued to build debt management capacity for effective macroeconomic, budget and policy planning.
Olusegun Obasanjo, a former president, attributed the gargantuan progress recorded by the DMO to a few factors which included the strength of the institution, technical competence of its management, which is essential in gaining the confidence of partners, and effective communication of the benefits of reform.
In addition, the string of successes recorded by the DMO had been attributed to the critical role played by the United Kingdom through the Department for International Development (DFID) in improving debt management in the country by providing support in brokering the 2005 debt deal and the establishment of the DMO.
It is noteworthy that the direct support for the DMO by the UK ended March last year, with a total of £8 million (about N2.08billion) spent in 15 years. Overall, the DFID support for the project has been a remarkable success, achieving all of its objectives and value for money.
Need for re-launch
The proposed re-launch in the country is aimed at celebrating the successes recorded by the DMO. It is also aimed at creating a platform for exchange of views based on the office’s success story as a performing institution and the expected influence on broader reform in the civil service. The launch of the review was done in 2013 in the UK.
The genesis
Prior to the transition to democratic government in 1999, Nigeria was faced with major economic challenges. Oil revenues which were expected to be the main stimulating force for economic growth were in practice, a source of political, economic and social distortions. Military rule was associated with prolonged periods of weak public accountability arising from lack of sustained pressure for improved governance, as well as absence of formal institutional involvement in policy processes. Nigeria’s external image was very poor, economic management was in chaos, and public debt was grossly mismanaged, as interest payments were not being met, and multiple penalties were being paid. As of 2004, outstanding debt was estimated at $36 billion or 57.8percent of Gross Domestic Product (GDP).
There was lack of consensus on the way forward on debt repayment. The National Assembly and the media expressed concerns over the legitimacy of institutional processes that led to the existing debt and its lack of benefits to the Nigerian people.
The fact that much of the debt was mainly accumulated interest and penalties rather than original sums borrowed added to unpopularity of any debt repayment programme.
There was an urgent need for a comprehensive reform to restore Nigeria’s external credibility. The British government played a key role as a genuine partner, spearheading the debt relief negotiation which brought about positive signals in the international community, at a time when the country’s image was not promising. Nigeria’s official creditors indicated that improved debt management would be a prior condition for the desired debt deal.
Phases of the programme
The process of institutionalising debt management in Nigeria involved three phases. Phase 1 (1998 to 2002) involved the creation of a DMO in 2000, on the recommendation of the then minister of Finance to the President, with the aim of establishing an effective public debt recording and management system. DFID and other external agencies provided ad- hoc technical assistance mainly in the form of standard computer software for debt management.
Phase II (2003 to 2007, extended to 2009) was structured on a broader goal of achieving a debt position that promoted growth and poverty reduction in Nigeria by strengthening public debt management and developing stronger relationships with stakeholders, financial institutions and the public.
Phase III (2009 to 2013) shifted emphasis from external debt reduction to national debt policy.
Quality of debt management
Prior to 1999, Nigeria had no reliable information about the amount of its public debt and there was no coordination among the seven different government agencies that handled different components. External payment arrears accumulated due to under-servicing of the debt. The DMO has transited from being a user of technical assistance to being a provider of the same to sub-national governments in Nigeria and to two other countries on the African continent (South Sudan and Zimbabwe).
The achievement is attributed largely to DFID support that has evolved from ad-hoc assistance to well-structured support for institutional development and from hands-on to demand-driven delegated assistance.
Economic impacts
Although attribution is hard, especially considering the ongoing monetary and fiscal reforms in the economy, part of the improvements in the economy can be attributed to stronger debt management. DMO’s compliance with international good practice has undoubtedly played a role in achieving improved macroeconomic management and creating an enabling environment for investments.
With the support of DFID, the Obasanjo administration achieved the exit of Nigeria from the Paris Club through the combination of a US$18 billion write off and a US$12 billion payoff. Also, the London Club resolution for private creditors was achieved. DMO staff with support from DFID not only prepared documentation and statistics for this process, they also assisted in getting support from the National Assembly and the press in overcoming domestic resistance to the debt relief deal.
Sound debt management has enhanced the government’s credibility and has contributed markedly to enhancing Nigeria’s creditworthiness. Nigeria’s 2011 US$500 million 10-year Eurobond and 2013 US$1 billion Eurobond were over- subscribed with yields lower than obtainable in a number of developed countries.
Sustainability
The sense of ownership and professionalism displayed by DMO management and its business-like approach, as well as the momentum of training and capacity building, provide a sound basis for the future after the end of the DFID support in March 2013.
Drivers of the success
-Power: The coordinated efforts of powerful interest groups both internally and externally provided the needed political support.
-Pressure: Public pressure (from popular opinion, the media and the National Assembly) on governments to improve relations with the rest of the world and resolve the debt crisis.
-Passionate leadership: Despite the power and pressure factors being in place, substantial progress was not achieved until passionate leadership emerged at the DMO as well as in the national economic management team.
-Professionalism: Apart from an enabling political and institutional environment, competence and continuity of management and separation of the DMO structure from the civil service, enabling it to attract and retain able staff were highly significant in building institutional capacity to effectively manage Nigeria’s debt.
By: Zebulon Agomuo
