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Last Updated: Aug 14th, 2006 - 11:32:28
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Debt and Development Issues
The Debt Management Office (DMO)
Apr 16, 2003, 10:19
| | With a debt stock of $28billion (as at March 2001), Nigeria’s average annual debt service from 1998 through 2000 amounted to about $1.5billion. Indeed, the projected debt service between 2001 and 2020 (after rescheduling and without new commitments) averages more than two billion dollars per annum, a total of about $43billion for the period.
About 65 percent of the nation’s Gross Domestic Product (GDP) is swallowed up by debt.
Establishing the Debt Management Office
The Debt Management Office (DMO) was set up in 2000 as a semi-autonomous unit of the Federal Government. Its assigned tasks include:
Centralising and coordinating the nation’s debt recording and management activities
Providing debt service forecasts
Making debt service payments
Advising Government on debt negotiations as well as new borrowings.
The role of the DMO will coordinate the activities of numerous management agencies that have sprung up in recent years. In 2000 there were eight agencies:
The External Finance Department of the Ministry of Finance
The Multi-lateral Institution Department of the Ministry of Finance
The Africa and Bilateral Economic Relations Department of the Ministry of Finance
The Home Finance Department of the Ministry of Finance
The Treasury Department of the Accountant General’s Office
The Debt Management Department of the Central Bank
The Debt Conversion Committee Secretariat of the Central Bank
The Public Debt Office of the Central Bank
These departments lacked functional cooperation and collaboration. Their debt data recording was weak, while their loan records were often incomplete. As a result, their ability to reconcile debt statements with creditors was very difficult. Also, their service/payment arrangements were so unwieldy and inefficient that the delays caused by this situation often resulted in severe penalties.
The coordinating role of the DMO includes:
Maintaining a comprehensive inventory of loans, together with forecasts of debt service
Providing timely and accurate information on the national debt to assist policy makers
Publishing up-to-date debt statistics so as to improve transparency in debt management
Effecting debt service payments accurately and on time
Managing the country’s debt portfolio so as to minimise costs to an acceptable risk profile
Conducting risk analysis and developing appropriate risk management policies
Conducting debt sustainability analysis to assess optimal borrowing levels
Assessing lending terms from various sources and negotiating best possible terms for future borrowing
Helping to inform and craft a debt management strategy with appropriate linkages to fiscal and monetary policies and overall macro-economic management.
Framework
Steps have been taken to provide the DMO with the proper legal framework under which it can operate. A Bill was sent to the National Assembly by the President on May 13 2002 entitled “a bill for an Act to provide for the establishment of the Debt Management Office and related matters”. It gives the DMO the mandate of being the sole agency responsible for external and domestic debt management. The Bill, since passed by both the House of Representatives (October 2002) and the Senate (March 2003), will become Law once it is assented to by the President.
Structure
The DMO is divided into five departments. These are:
Portfolio Management and Strategy
Loan Administration and Data Management
Legal Services
Finance and Administration
The Domestic debt department
The core staff members of the DMO were drawn from the Central Bank and the Ministry of Finance. They include a Director General who is assisted by Departmental Directors. The Directors, in turn, supervise the work of Group and Team Leaders. At the apex of the Office is a Supervisory Board that is headed by the Vice-President as Chairman. The Minister of Finance is the Deputy Chairman. Other members of the board include: the Governor of the Central Bank, the Accountant General of the Federation, the Director General of the Securities and Exchange Commission and the Director General of the Debt Management Office.
Activities
Since inception in 2000, the DMO has recorded success in:
Auditing Nigeria’s debt portfolio, updating and computerising the debt database and reconciling figures
Negotiating the rescheduling of external debts by arriving at agreements with the Paris Club
Structuring the above agreements on Houston Terms, which provides for the rescheduling of debts totalling $21.4 billion over an 18-20-year period
Meeting with individual creditor countries to negotiate bilateral agreements
Working with a team of financial advisers to explore options for the restructuring of the nation’s commercial debt.
Domestic debt
The incorporation of domestic debt management functions into the DMO commenced in the second half of 2001.
Domestic indebtedness is simply debt denominated in local currency. It consists of debt accruing from treasury bills, bonds and development stocks issued by the Central Bank of Nigeria (CBN).
Other sources of domestic debt include:
Direct borrowing by some Government-owned agencies from commercial banks
Debt arising from local money owed contractors
As at the end of 31 December 2001, the domestic debt amounted to over one trillion naira, half of which is in the form of 91-day treasury bills, which are continuously rolled-over. The rest include N433billion in treasury bonds and development stocks. Approximately N596billion or close to 60 percent of the outstanding public domestic debt stock is owed the CBN. Another N340billion or 34 percent is owed public investors.
Treasury bonds were introduced in 1989 mainly to avoid the payment of market interest rates on treasury bills. These bills had risen significantly in the wake of interest rate deregulation, following the adoption of the Structural Adjustment Programme (SAP) at the time.
Strategy
The strategic objectives of the DMO’s domestic debt programme are:
To finance domestic debts at the least cost
To develop policies on management of the public debt that will help to lower the cost of domestic debt service
To enhance transparency by disseminating key information in a timely manner and ensuring openness and predictability
To develop and expand Government securities market
These objectives are achievable by the implementation of the following:
Restructuring domestic debts
Establishing clear objectives for debt management and security issuance
Conducting revenue, expenditure and cash forecasting, and implementing borrowing needs based upon the foregoing
Developing new proposals targeted at investor needs (like pension funds)
Developing a market-based financing plan and eliminating distortions arising from below-market-rate funding
Gradually extending the maturity of Government securities
Reviewing legal and regulatory framework for primary and secondary market securities
Collecting and organizing non-secure domestic debt data
Developing guidelines for state and local government borrowing
Providing consultation to all interested parties and stakeholders, regarding domestic debt issuance and management
Conducting seminars on appropriate fiscal and monetary institutional relationships
Promoting investor awareness of the opportunities available in investing in such securities
Disseminating key, debt-related data to the public and key stakeholders.
© Copyright 2006 nigeriafirst.org
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