External Debt: The Bane of Nigeria's Socio Economic Development

Over the years, external debt has been the bane of socio-economicand development in Nigeria. Despite its huge revenue from over 50 years export of petroleum product, country has remained one of the most impoverished countries in the world with very poor infrastructure to drive its economy and about 60 per cent of its populace living on less than dollar a day (Ifeoma,2009). Several years after its independence, has left itself at the mercy of foreign creditors through continued external borrowings, which in turn gulps huge amount in the national budget yearly for their servicing.

In 2005, the country relieved itself of a total debt of $30 billionthrough the Paris club deal during President Olusegun Aremu Obasanjo, but as at June 2009, the new debt status stood at about $3.7 billion while more borrowings were in the offing but stalled by the resistance of House of Representatives who mandated its committee on debt management to investigate Nigeria’s loans and ascertain their legality or otherwise (Adebayo, 2009). This was on the premise, four years after Nigeria got reprieve from its debt burden acquired over the years by successive governments, a fresh debt burden has started setting in with the renewed frivolous borrowings which the House of Representative ascribed the manner in which there were obtained as dubious, shady and corrupt (Sulaiman, 2009). Henshaw (2009) alleged that the International creditors like the WorldBank lure Nigeria into more loans because of what they gain from it as their service charges grow higher than the actual borrowed amount,while Nigeria suffers huge capital flight through annual debt servicing.

As revenues from oil production increased Nigeria’s attractiveness topredatory external creditors led to major borrowing by successivegovernments with the resultant huge external debt burden of the country. All manner of loans were collected from private and multilateral creditors by the federal and state governments mostly during the military regimes. And the resultant debt burden meant that substantial amount of oil revenues were expanded on servicing the accumulated external debts annually. Surveys showed that the cost of servicing these debts over the yearssurpasses what was actually borrowed by up to 100 per cent. For instance, for a period of about 20 years before the supposed debt write-off by the Paris club in 2005. Nigeria’s actual borrowing was put at about $10 billion, while it had spent over $35 billion in annual debt service payments for the period and still owed about $36 billion (Savvides, 1992). Besides, servicing the growing debt stock is gradually becoming a burden on the federal government and the states and this in turn really affect the development in the country.

Richard (2009) also viewed the continued borrowing from the ever-readyinternational creditors as neo-colonization as most of the loans come with conditions which tend to weaken the economy of the country, through excessive liberalization. Most of the loans come with conditionality of economic liberation imposed by the International Monetary Fund (IMF) and the World Bank (WB) which the country must meet to qualify. This neo-liberal strategy is principally focused on the promotion of free markets, including privatization, deregulation,and trade liberalization, which reduce the ability of government to provide basic social services for the people. As conditions attached to loans, the international creditors have at various times demanded that Nigeria adopt the following neo-liberal policies:

• Reduction in overall public expenditure
• Removal of petroleum and other subsidies
• Trade liberalization
• Devaluation of the currency(World Bank,1980)

Consequences of World Bank Policies on Nigeria’s Socioeconomic and Political Development

With loan offers, external institutions like World Bank have been ableto undermine the sovereignty and independence of many countries, with reference to Nigeria, they have quite often prescribed policies that are essentially anti-people, increased poverty, increased level of unemployment and encouraged the tying of the economy of developing countries to that of global community, much to the detriment of the local people and to the benefit of donor countries (Ogbe, 2008).

The external loans regime has ensured that more resources areleaving Nigeria to industrialized countries than the country receives in development aid from the G8. For this reasons, Nigeria must be cautious about incurring more external debts. External loans should be sought only for every high priority, well-appraised, and self-liquidating projects. Such projects should have direct impact on economic development. However, government should make fiscal adjustments through cuts in expenditures, as this would reduce the level of deficit financing which exerts pressure of foreign exchange.

Towards a Sustainable Public Debt Management

As the critical nature of Nigeria’s debt problems becomes widelyrecognized, advocates of innovative solutions put forward a number of debt management strategies. Basically, conscious and discernible efforts were made to adopt relief measures. Essentially, the management strategies that have been adopted are those within the framework of the global debt relief measures. In a broad sense, these includes; debt refinancing, rescheduling, restructuring and debt conversion under the aegis of SAP (Sogo-Temi, 1999).

In a narrow sense, the way ahead for Nigeria and African countries isto de-link from the present international capitalist arrangement and pursue a progressive socialist programme of development. But before this can take place, there is need for reconstruction of the present condition of African states, to put political power in the hands of the people who can thereafter take their destinies into their own hands. In the short –run, Nigeria needs to devise means of promoting a sustainable debt management strategy and take full advantage of the opportunities of debt relief through prudent management of resources and effective co-ordination of all debt management related offices.

Nigeria must also invest in entrepreneurial development to boost tradeand investment not only in the continent, but also between it and the rest of the world. All these are possible where there is a system of governance that is democratic, efficient and development oriented. If the debt relief currently granted is to be sustained, this trend mustbe reversed. First, it is important that Nigerians should step up their level of domestic production, both in terms of quantity and quality. Nigeria could start by investing more in entrepreneurial development.Above all, there is need to institute and strengthen a sustainable regime of good governance across the country. Also, the current wave of democracy must be sustained, which will require the institutionalization of an open political process, including multiple political parties, a free civil society, an informed citizenship, a free press, an independent judiciary and a democratic political culture. The government and the Debt Management Office (DMO) should draw up guidelines to limit the growth of future debt. In this regard, debts service ratio must not exceed 40 percent of allocation from the federation account. Effective mechanism should be put in place to ensure that any borrowing is judiciously utilized to contribute to economic growth.

The place of corruption in public debt in Nigeria is central. Most often, borrowed fund are either misapplied or embezzled. In this regard, government effort at curbing corruption should besustained. It is good news that the corruption perception index of Transparency International has shown positive improvement in Nigeria standing, this should be sustained.

It is generally believed that every organization in the world shouldoffer the best approach to achieve good performance in their respective country in which they are situate(Araham, 2011). Robbin and David (2003) observes that Organizational studies encompass the study of organizations for multiple viewpoints, methods and levels of analysis. For instance, some scholars divide these multiple viewpoints into three perspectives: modern, symbolic and postmodern. Another traditional distinction, present especially in the American academia is between the study of “micro” organizationalbehaviour – which refers to individual and group dynamics in anorganizational setting and “macro” organizational theory which studies whole organizations, how they adapt and strategies and structures that guides them. Prior to the establishment of the Debt Management Office (DMO) in 2000,the institutional framework for managing the country’s debt was very weak. Obasanjo (2000) cited the following challenges facing Debt management in Nigeria:

• The lack of coordination among the various agencies involved incontracting and managing public debt;
• A weak and unreliable database;
• The lack of skilled debt managers;
• Weak institutional arrangements for managing domestic andsub-national debt; and,
• A loose legal framework.

This section summarizes the legal and institutional arrangements for public debt management in Nigeria which served to overcome the weakness above.

Legal Framework for Debt Management

According to NDMF (2000) the extant legal framework for managingdebt includes, among others, the following: The Constitution of the Federal Republic of Nigeria: This vests exclusively in the National Assembly (NASS) the power to make laws to regulate both external and domestic borrowing for the federation- Federal, State and Local Governments. The Second Schedule, Exclusive Legislative list, items 7 and 50 confer this authority on the NASS. Pursuant to its constitutional authority and mandate, the National Assembly enacted the Debt Management Office(Establishment) Act, 2003. Act no.18 and Fiscal Responsibility Act to regulate external and domestic debt at theFederal, State and Local Government Levels. The Debt Management Office (Establishment) Act, 2003, Act no 18: This establishes the DMO as an autonomous body charged withthe responsibility of managing the country’s debt. Among other things,it empowers the DMO to:

• advise government on how to fund its financing gap;
• issue guidelines on public borrowing by Federal and sub-nationalgovernments, their agencies and public enterprises; and,
• determine the level of Federal Government’s contingentliabilities that may result in extra-budgetary spending andrecommend appropriate action for dealing with them.

The Local Loans (Registered Stock and Securities Act): This act provides for the creation and issue of registered stock. Government Promissory Notes and Bearer Bonds, for the purposes of raising loans in Nigeria.

The Treasury Bills Act: This empowers the Minister of Finance to issue Treasury Bills, through the Central Bank of Nigeria (CBN) as his agent, to the limit of 150 percent of the estimated revenue of the Federal Government and gross revenues of the State for the current year. The Consolidated Revenues Fund is to be credited with the proceeds of this issuance from which the Minister is allowed to pay out any charges and expenses arising thereof.

The Treasury Certificate Act: By this Act the FGN can raise short term loans of not more than two (2) years tenor by issuance of Treasury Certificates, whose proceeds may be on-lent to states. The Government Promissory Notes ACT, CAP 164: A GovernmentPromissory Note is a promissory note issued under Section 3 of the Government Promissory Act. Given the definition under Section 3, Government Promissory Notes are securities issued whenever authority is given to raise any sum of money by loan or repay any loan raised by the Federal Government.

Investment and Securities Act No 29 2007 (ISA): This empowers the securities and Exchange Commission (SEC) to regulate borrowing from the domestic capital market by Federal, States, local governments and other government agencies. This Act makes provisions for borrowing from the Nigerian Capital Market. Central Bank of Nigeria (CBN) Act 2007: This Act enables the CBN among other things to discount or rediscount project-tied bonds issued by State Governments. Local Governments and corporations owned by the FGN or State Governments, being bonds which have been publicly offered for sale and with maturity not exceeding three years, and grant advances to the Federal Government.

Fiscal Responsibility Act 2007: This imposes fiscal discipline on the Federal and to some extent the State Governments, and their agencies and particularly for the States in respect of borrowing, debt management and oil-based fiscal rule within a medium-term expenditure framework. Also, the States have committed to adopting similar legislation. DMO Act (2003) observes that the government established a DebtManagement Office in 2000 with the mandate of managing the country’s external and domestic debt. Part III, Section 6 of the DebtManagement (Established) Act 2003, specifies that the DMO shall:

• Maintain a reliable database of all loans taken or guaranteed bythe Federal or State Governments or any of the agencies;
• Prepare and submit to the Federal Government a forecast of loanservice obligations for each financial years;
• Prepare and implement a plan for the efficient management ofNigeria’s external and domestic debt obligations at sustainablelevels compatible with desired economic activities for growth anddevelopment and participate in negotiations aimed at realizingthese objectives;
• Set guidelines for managing Federal Government financial risksand currency exposure with respect to all loans;
• Advise the Minister on the term and conditions on which monies,whether in the currency of Nigeria or in any other currency, areto be borrowed;
• Submit to the Federal Government for consideration in theannual budget, a forecast of borrowing capacity in local andforeign currencies; and,
• Prepare a schedule of any other Federal Government obligationssuch as trade debts and other contingent liabilities, both explicitand implicit and provide advice on policies and procedures fortheir management. Moreover, the Act empowers the Debt Management Office to issue periodic guidelines to regulate the conduct of external and domestic borrowing as approved by the Federal Executive Council (FEC) and the National Assembly.

Debt Management Related Committees

In addition to the establishment of the DMO, the government hasconstituted multi-agency advisory committees, namely:

• Monetary and Fiscal Policy Coordinating Committee(MFPCC): To clarify and harmonize the objectives of public debtstrategies, fiscal and monetary policies, among other things.Members of the Committee are drawn from DMO, MoF, CBN,Budget Office, OAGF and NPC.
• Bond Market Steering Committee: To get the buy-in of allrelevant stakeholders and to speedily resolve any conflictingpolicy issues that may hinder the orderly development of theNigerian bond market. Members of the committee are drawnfrom DMO, SEC, NSE, CBN, PENCOM, and the organized privatesector.
• Sub-national Steering Committee: To streamline themanagement of Nigeria’s domestic debts, make fiscal federalismeffective, and ensure full involvement of States in themanagement of sub-national debt, the maintenance of a reliabledatabase and design of borrowing guidelines. Members of theCommittee are drawn from the six geopolitical zones, OAGF,FMF, CBN, and DMO. A representative of the World Bank serveson the Committee on an advisory basis.

Inter-Agency Relations

• In matters of policy, strategies and procedures for itsoperations, the DMO must obtain the approval of the Board,whilst the approval of the National Assembly (NASS) must beobtained for the negotiation and acceptance of external loansand the issuance of guarantees. DMO must also the approval ofthe Federal Executive Council (FEC) with respect to guidelinesdrafted for its procedures and strategies.
• National Planning Commission (NPC) by mandate is responsiblefor managing grants from development partners. To enable thegovernment have a holistic view of capital flows, DMO liaisesclosely with the NPC to obtain grant data.
• The DMO collaborates with other government agencies forvarious activities, including the conduct of Debt SustainabilityAnalyses (DSAs), debt servicing and settlement and, asmentioned above, macro, fiscal and monetary policy coordination. Such government agencies arethe following: Federation Ministry of Finance (MoF), NationalPlanning Commission (NPC), National Bureau of Statistics(NBS), Central Bank of Nigeria (CBN), Office of the AccountantGeneral of the Federation (OAGF), Bureau of Public Enterprises(BPE), Office of the Senior Special Assistant to the President onMillennium Development Goals (OSSAP-MDGs) and the BudgetOffice of the Federation.
• The CBN currently issues Nigerian Treasury Bills (NTBs) via anauction system in which prices are market-determined. Jointefforts are being made to involve DMO in the process, becauseof the implications that the issuance of NTBs has for the overallsupply of government securities in the market. CBN raisesinstruments for monetary purposes while DMO raises debtinstruments for government financial needs, including cashmanagement needs. To ensure coordination in marketintervention, close relationship is achieved through theMonetary and Fiscal Policy Coordinating Committee.

Debt Management Organization Board and Management Structure of DMO

Following the establishment of the DMO in 2000, debt managementfunctions have been concentrated in this autonomous government agency located under the Presidency. The DMO Act provides for a Seven-member Supervisory Board, where the Vice President of the Federation is the Chairman, the Minister of Finance is the Vice-chairman and other members include the Attorney-General of the Federal, the Chief Economic Adviser to the President, the Governor of the Central Bank of Nigeria, the Accountant-General of the Federation and the Director-General of DMO.

The Director-General of DMO is also the Secretary to the Board. The Board was inaugurated on Thursday, 23rd August, 2007. Departments and Operational Responsibilities The DMO is structured in a front, middle and a back officeconfiguration in line with international best practice in debt management. It consists of five core departments and one support department, namely:

• Portfolio Management Department (Front Office) – negotiatesloans and is responsible for the issuance of sovereign bonds.
• Strategic Programmes Department (Font Office) – responsible forfacilitating the development of Debt Management Departments (DMDs)in the 36 States of the Federation; nationwide public debt education;the establishment of the Debt Management Institute; and themanagement of associated issues and externalities affecting publicdebt.
• Market Development Department (Front Office) – responsible forthe development of the Federal Government of Nigeria debt securitiesmarket.
• Policy, Strategy and Risk Management Department (MiddleOffice) – is responsible for, among others, the formulation ofpolicies and strategies; performing debt sustainability analyses andrisk evaluations on the portfolio.
• Debt Recording and Settlement Department (Back Office)- Thisdepartment responsible for the recording of public debt data and theservicing of debt.
• Organizational Resourcing Department (Support Office) –responsible for human resources and administrative issues, IT,accounts, outreach and communication

Administrative Unit: Its general Administration functions include the following:

• Facilities Management;
• Protocol and passage;
• General administrative duties include management of poolservices such as the administration of Office Assistants, dispatch riders, etc;

Publicity and Media Relations:

to create and preserve a goodimage for the DMO by being both proactive and reactive in dealing with press issues management and the management of public functions. The Admin unit is responsible for managing the external communications strategy of the DMO. In addition to creating and preserving a pleasant and favorable image for the DMO, this unit will also spear head relationships building between the DMO and its clients and other stakeholders working in tandem with the operational departments (dmo.gov.ng).