‘Our mandate is to broker cheap deals, not implementation’
Ms Patience Oniha is the Director-General of the nation’s Debt Management Office (DMO). The debt manager, whose contributions matter in the management of the country’s fiscal decisions for about two years now, has severally expressed a desire to bring the revenue up to speed with current borrowings. In this interview with Assistant Editor, Finance/Economy, CHIJIOKE NELSON, she says her duty is to broker cheap deals and not budget implementations.
Do you still see the debt stock as sustainable?
My answer is yes. I won’t say the debt stock is too high. When you look at it relative to the size of your GDP, which is one of the measures that IMF uses, it is low and among the lowest in the continent. But where the concern is at the moment for government officials, myself inclusive, is that the debt-service-to-revenue ratio is higher than we would like it to be. Again, the debt service figure in absolute terms, is not what is large, given the size of the economy, but the issue is that our revenue is extremely low. And why that has come up to the fore lately is because our revenue dropped by about 50 per cent when oil prices crashed. Of course, the debt service is fixed and some of the debts were also contracted long time ago. They are fixed coupons, which are not dependent on oil prices. So, our debt service is growing because each year we are running a deficit budget and financed by debts. So, in absolutely terms, debt stock is not too high. We only need more revenues so that we stop using a large part of our revenues to service the debt.
There seems to be aggressive borrowing in the last three years, which jacked up the debt burden. Why?
We’ve always borrowed, not small amounts. So, one of the things we have to factor is depreciation. But what has then happened during this period is that we went into recession, precisely in 2016. Everybody saw that coming. When you go into recession, anywhere in the world, you pump in money into the economy to restore growth. We’ve seen the result now. Government then, needed to borrow money. All we have always had is oil revenue and the oil prices went down. That meant that government needed to spend more to stimulate the economy. Government had to spend more money, largely on infrastructure to stimulate the economy. Government’s social investment scheme is still there. Yes, borrowing increased because revenues were down. One of the things we shouldn’t forget is that budget is a public document. Your wages are fixed. Your personnel cost are fixed. If you match only your revenues to your personnel cost for instance, we won’t be able to pay salaries. The government took a wise decision that in a period of recession, it was not going to downsize or reduce wage bill. Of course, the revenues couldn’t have sustained the wage bills.
We also have a debt management strategy that states that the ratio of domestic-to-external debt should be 60-40%. We then said, for external borrowings, we will do only concessional windows, which have many benefits. But we were still running a budget deficit. Those loans are not for budget deficit, but are project-tied. We still then, needed to borrow to fund the budget. Because we are a frontier market, our cost of borrowing was high. Debt services were high because interest rates in the local market were high. That was the occasion of monetary policy tightening by the Central Bank of Nigeria, with the recession. Government was borrowing at 18.5% in Treasury Bills. Our borrowings were at market rates. Whereas you were earlier borrowing at 12%, it turned to 18.5%. The interest rate presently is about 14% compared to 18.5% then and we have injected money into the system. So, that aggressive borrowing is a strategy aimed at increasing the external debt component to reduce debt service cost in local market. That is, borrowing at lower rate and freeing up space in the domestic market. Between December last year and June, we released about N840 billion into the market.
External borrowing contributes to our external reserves. Last year alone, we gave the CBN over $7 billion. That strong reserves is very important because when the multilateral institutions are assessing the economy, they include credit conditions, level of external reserves and volatility of the currency. So, the debts are all about macro-policy rather than DMO. That has helped the CBN in monetary policy. That money is clean and becomes their own, not a loan, because they bought it and gave us Naira. It’s sitting there safe.
Despite the borrowings, why has the full implementation failed?
For us at DMO, we always deliver on the borrowing. It is left for the agencies in charge of procurement and capital releases to explain reasons for the non-implementation of the projects for which the funds are borrowed.
Since concessional loans are much cheaper than Euro Bonds, why do you still go for Euro Bonds?
Concessional loans cheaper, a reason everyone jumps at them. But the reality is that it still has a limit. An institution as the World Bank, African Development Bank, China Export Import Bank, India Export Import Bank, among others, will assess you and tell you the limit of what it can give you. But what if you need more? Everything you can take with concessional loan from all of these institutions, we take. But if our need is beyond what they can offer, then we go and issue Euro Bond. If concessional loans are limitless, we won’t go to the Euro Bond market or commercial window.
One of the things that also happened was that by the time we moved into lower-middle income, we were classified as having grown a bit stronger, meaning “we can’t give you 100% concessional.”
How much of the N460 billion released for capital project in 2018 budget was borrowed?
Some of it is from borrowing in the domestic market, almost N300 billion. We have not borrowed from the foreign market. That’s what speaks to implementation of the capital budget. By the time we would be issued the golden paper, that is, the legislative approval and the actual floating of the bond, it has spilled over to another year.
Is there a debt strategy on states’ borrowing?
Two quick points. Several sections of the Fiscal Responsibility Act applies to states as well. A golden part of that document says “you can only borrow on concessional basis and human capital development.” The States have to apply. So, there is a rule. The DMO Act also provides that for any state to borrow, it must first apply to the Minister of Finance. Before now, many of the banks were not complying. They write to the minister and copy the DMO. There is the Fiscal Sustainability Plan, Investment and Securities Act, the SEC Act that have provisions for borrowings. The DMO has a standing guidelines for external and domestic borrowings for the Federal Government and the states. The document says that the debt service of a state should not be more than 40% of its revenues. The revenue of a state is defined by what they get as FAAC allocation.
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