The recent restructuring of states’ short-term bank loans into long- term FGN Bonds by the Debt Management Office (DMO) and the Central Bank of Nigeria (CBN) may have brought industrial harmony to the polity.
This is because apart from freeing the debt service burden of the states, it has enabled them to face their contractual obligation to workers. It has also normalised the states’ relationship with the banks, which could have deducted the debts at source from the Federation Accounts Allocation Committee (FAAC).
Each bank’s loans to states have been converted to FGN Bonds. The debt restructuring operation has been executed for 23 states in two phases on August 17 and September 16, 2015; total of N575.5 billion was restructured with 15 banks involved. The restructuring was effected using a re-opening of the FGN issued on July 18, 2014 and maturing on July 18, 2034, and the pricing was based on the yield to date of the bond at a 30-day average, resulting in a transaction yield of 14.83 percent.
Debt service of the bonds has been structured in the same way it would have been, if the states had accessed the market directly – with appropriate arrangement between the Federal Government and each state concerned, on the collection and remittance of debt service obligations – but over a longer period, Abraham Nwankwo, director general, DMO, said on Tuesday in Lagos at the fourth quarterly lunch meeting organised by Association of Issuing Houses of Nigeria (AIHN) and co-sponsored by FMDQ OTC Securities Exchange.
For banks, the development has been beneficial, as short-term sub-sovereign loans faced by non-performance have been replaced with long-term sovereign, high quality loans.
It has enhanced liquidity and no asset-liability mismatch because FGN Bonds have a reliable secondary market, as well as improved space to lend to the private sector as they give that their bond holdings could be exchanged for cash in the secondary market.
He said the restructuring had helped in fiscal stabilisation, adding that what was needed were measures for long-term stabilisation.
Nigeria needs to articulate measures on how to mobilise resources to grow the economy in the next two to three years, but that the resources are not going to come from revenue, which has dropped as a result of about 50 percent drop in oil prices, but by only one source, which is borrowing, Nwankwo said.
“The current challenge of exogenously induced fiscal imbalance facing governments in Federation reflects the longstanding weakness of over-dependence on revenue from crude oil exports. It also reflects the abysmally poor performance by Nigeria over several decades in converting oil revenue to new forms of capital assets that give sustainable revenue streams,” the DMO DG said.
Nevertheless, he said there was still a broad resources base for diversifying and industrialising the economy, adding that with appropriately structured financing, Nigeria should be able to programme a trajectory of long-term fiscal stability and self-sustaining growth.
HOPE MOSES-ASHIKE
