THE Debt Management Office (DMO) is assuming a greater role in assuring that the debt profile of the country does not exceed the countrys GDP. This means that the debt profile should always stay within a sustainable level. The Director-General of DMO, Dr. Abraham Nwankwo, during a retreat organised by the organisation in Kaduna last week, spoke to journalists on sundry economic and financial issues. BUKKY OLAJIDE was there. Excerpts:SOME European countries have suffered debt crisis in recent times. How can African countries avoid such debt trap African countries can avoid debt crisis in many ways. They can avoid it from expenditure side and the revenue side. From the expenditure side, they African countries including Nigeria should reduce and manage their expenditure more efficiently. On the revenue side, they should diversify the revenue base, undertake economic reforms including tax reforms so that they can collect more revenue in form taxes from various sources and not from few sources. But the crucial thing is to reform their economies in such a way that encourages the growth of private sector. That is what Nigerian government is emphasising over the past two years or so. The Nigerian government is encouraging public private partnership and the president himself is urging private sector to be more proactive. That is why the government through the Debt Management Office (DMO) is assisting the private sector to open new windows to have access to capital. This is one of the reasons that informed the raising of the $500 million at the international capital market.Talking about the $500 million bond the government raised recently, there were initial fears of under subscription given the political situation of the country. However, the offer was successful. But now, the new fear is the how the funds would judiciously be utilised. There are fears that the funds may be used to finance political activities. What is your stake on this For every country whether elections or not, once you go the capital market to borrow money, one of the issues that has to be assessed is your political risk and that is a standard index to look at. In the case of the Nigeria, we are just at the threshold of election. It is, therefore, natural that investors ask more questions and they did ask during the road show. All the questions they asked were answered by us, I mean the Nigerian team that went for the marketing of the bond, which included the minister of Finance, minister of state for Finance, minister of National Planning and officials of DMO. We presented the economic political situation of Nigeria to the international community and they were comfortable with what has happened to Nigeria. They were more comfortable by the way the various presidential and other primaries were held and how all the political parties, in an orderly manner, were able to choose their flag bearers. That was enough indication to them that Nigerian democracy has come to stay and is marching forward and the team was able to convince them that the elections coming up in April will end up further consolidating our democracy. That led to the favourable reaction to the bond in terms of subscribe and pricing we have got. However, going forward, there is a responsibility that goes with that success. Because we have our bond in the market, it is like having a baby. If you have a baby, you to nurture that baby to maturity. You do not issue a bond and turn your back. You issue a bond, you have gotten the money and your bond is trading in the market. Now the price of that bond would be moving up and down like every other bond in the secondary market. This movement will reflect the realities of the Nigerian economic fundamentals. As time goes on the price will be changing reflecting the perception of the Nigerian economy. That is why Nigerians have to appreciate that they have achieved a new level of responsibility. A lot of more efforts have to be made in terms of our economic conduct, political conduct, and media conduct. Our media has to appreciate that what we say about the economy or polity has to be a little more constructive. These are responsibilities that our presence in the international market imposes on us. And these responsibilities will help us to do better what we are already doing well both in our economy, polity and our journalism. Now coming to the issue of the utilisation of the proceeds, I can assure you that the utilisation would be according to due process and the broad framework for that is the national budget.The amount that has been raised, as you know, was a financial item in the 2010 budget. It is a financial item and therefore cannot be spent outside the framework of the budget. It is already tied to the budget and the implementation of the budget has been extended to March 2011. So there is no problem in terms of how it will be used, because it is a financial item in a budget, which has been put into law.Looking back to the 2010, what can you say are some of the achievements of DMO We consider everything to be very important and we also consider to be very important the way we do whatever we want to do given the fact the bottom line is contributing to national development. May be I will just mention a few areas of direct public appeal. The first thing I need to mention is that as you know and because of the global economic and financial crisis, government needed to mobilise resources in order to counter the down spill of the economy at a time when the private sector has retreated in the face of the problem created by global financial crisis. In this intervention to mobilise the resources, I will say that government reasonably relied on DMO to mobilise part of the resources it use for the intervention in the form of stimulus package. This was reflected in government intervention in commercial agriculture, intervention in the revival of cotton, textiles and joinery as examples. And the second area, I will say we contributed in an outstanding manner is bid of Nigeria to raise $500 million in the international capital market. And you know that even though we concluded it January this year, precisely January 15, much of the work had been done in 2010, and indeed, we had intended to conclude it before the end of the year. But for strategic reasons, we moved it to January. So essentially, it is 2010 achievement. What raising the $500 million successfully meant is that we have placed the Nigerian flag prominently at the centre of the international capital market. All those, who go to that market, will see Nigerian flag and have the opportunity to think about what they want to offer to Nigeria or what they want Nigeria to offer to them. It creates a basis for exchange and exchange is the soul of the modern economy. Because we are present in that market, we have an opportunity to ask and we have an opportunity to give that is the way to summary it in simple manner. Before now, we were just existing, but we are now physically present in the international market place. In practical terms, it also means now that it much easier for Nigerian private sector to have access to international capital market, either when they want raise equity or when they want to borrow. Because the Nigerian sovereign bond is trading in the market, it serves as an indication of the dynamism of the Nigerian economy. Therefore those, who go abroad use to source for foreign investors, the investors will refer to the Nigerian sovereign bond as an indication that this is a country that has come of age. Those who want to lend to the private sector will also do same because for you to be able to successfully access the international market, you have undergone rigorous scrutiny. You must pass many tests that will make those, who manage funds for other people to consider investing in your bond. So that mean that Nigeria in the eyes of international capital market, has achieved the best standards, in terms how we organise our economy, in terms of processes, in terms of or openness, in terms of our transparency and more importantly, in terms of vision to move forward. It also indicates that the international community and investors generally have confidence in the long-term growth and stability of both economic and social aspects of Nigeria.DMO has been raising funds from various reasons. But what does the Federal Government do with the money from the sale of crude oil considering the fact that after the end of every year some ministries return money unspent The fact that there is oil money does not mean that the government should not borrow. It means that when government budget oil revenue it would get for the year and add all other revenues including tax revenue, VAT, that becomes its projected revenue for that year. On the other hand, the government also has its projected expenditure. But for each year when there is a provision for borrowing in the budget, it means that all the projected revenue, including the oil revenue, is less that the projected expenditure and therefore there is deficit, so you must borrow. Therefore, the fact that there is oil revenue does not negates the need for borrowing. On the other hand, in the immediate to, long term, government is striving to make efforts that much of the revenue is derived not from oil but from non-oil revenue. That is the whole essence of diversification because that is a healthy way to go. That is that. On the other hand, you said at the end of the year some of the capital projects are not executed and the money is returned. The money that is returned goes to the treasury and it becomes part of the resources for funding the new budget because it is from the treasury. So, those various aspects are internally consistent. It is important to recall that every year, the part of what could be said to be international projection for oil revenue it terms of price and volume to be exported is based on a particular benchmark. The whole idea is that Nigerian was subject to the vagaries of the oil market so that whenever oil prices falls drastically, we will be in trouble in terms of implementing our budget. We always think of right sizing both in the public and private sectors whenever we are not able to implement our budget and pay our bills again. We are operating as if the oil money, the oil revenues will never fall that they are very reliable. But since you know that vagaries of the oil market, government in its wisdom decided that they have to adopt a fiscal rule whereby we consider what could be termed a stable oil price, a sort of average so that when we are spending even when oil prices are much we spend as if they have not risen and we save the extra. In that case, whenever oil prices fall below that benchmark consistently for a long time, we can now make use of what we have saved to bridge our funding to maintain a smooth level of expenditure. That measure is one thing that helped Nigeria during the global financial crisis because we have already gotten used to saving part of our excess crude earnings and when the crisis came, we were able to augment the current earnings with the savings. During the global economic crisis, the developed countries were no more demanding for oil as they used to do because their industries were downsizing. Their industries were not demanding much raw materials including oil. It affected us in that way but because Nigeria was having the excess crude account the government was able to take care of its current spending with these savings even though current revenue was not as much as it should be.What are the efforts the government is making to reduce deficit financing Everywhere in the world, there a standard for deficit. Government knows that deficit should not go beyond certain level except there extra-ordinary circumstances. Like during the financial crisis, nobody looked at the ratio. Even the developed economies and countries jumped over the threshold because the need to add capital to the system. If the private sector has closed down more or less, you cannot say because there is a ratio that has been set under normal circumstance, and still refused to change, you are killing you economy. That was why almost all the industrialised country jumped over the threshold because it made sense given that circumstance. In our own case, that was what ballooned our debt-to GDP ratio because we needed to borrow for counter fiscal measure as stimulus package. In any case, government knowing that it should not be a permanent way of life has started rolling back. The government is no longer interested in borrowing, as it was a few years back. It is taking the back stage and allowing the private sector. The past borrowings were done to stimulate the economy because the private sector was not borrowing and the banking sector was virtually not lending too. That was why the government led the way. Now that things are improving, the government is rolling back. This development has addressed the fears that government was crowding out the private sector. The stage now set to private sector to take over because the government has been able to create the needed atmosphere both locally and internationally for borrowing and lending to thrive.What is the status of the DMOs efforts to make states have an updated database for public debtAs you know, two years back, we rolled out a programme of helping every state to have very strong public debt department. Based on that we have gone ahead to build capacity for all the states. First of all, it is important to mention that Nigerians need to show appreciation to that set of governors because it was not easy in fiscal federalism for all the constituent units to subscribe to an initiative introduced at the centre. But in this case, governors were so broadminded, they were so much forward looking and all the governors agreed and went ahead to administratively set up the public debt management department in each of their states. The challenge for us then at DMO was to implement a template, which we have developed so that on a systematic basis over the next couple of years build up each states public debt department to a very effective level. By December 31, 2010, we had been able reconstruct the domestic debt of 16 states and going forward, we are continuing. At present, two teams from DMO are going to two additional states and for each visit, we stay for two good weeks and work with the states officials to reconstruct their domestic debt data. So we are continuing with that programme and we hope that before the end of 2012, we would have completed the programme covering all the 36 states of the country.At the heat of the equity market crisis, we saw investors migrate from equity to bond market. There is a gradual rebound in the equity market now. In your opinion, what are the prospects of investing in the bond market It is important for me to say that from public debt management perspective, we are interested in the development of not just the bond market but also of the equities market because we know that as a virile financial system, a robust capital market has to stand on two strong legs-equities and debt legs. We are in charge of the debt leg but we cooperative closely with those responsible for the equities leg as well. And we share ideas and make sure there is synergy. Therefore, we are happy that equities market is rebounding. We know that it is complementary to the debt leg. That means it better always to have the two legs functioning. That way investors and portfolio managers will have an opportunity to achieve optimum allocation of their resources and that is good for the economy. So we do not look at it from a segmented point of view of the bond market pricing. We look at it from the point of view of both so we are happy that the equities market is rebounding to work with them even competitively, cooperatively for the development of the economy because as each segment of the economy tries to perfect itself to attract investments, then they continue to push the economy forward. In the attempt to do better than they are doing as the want to be relevant they push the frontiers of the economy forward. And that is what the economy needs.
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