Joseph Inokotong, Abuja
Mr Cijeyu Ojong is an economist, chartered accountant and public financial management. He was a foundation staff at the Debt Management Office (DMO) and was part of the core team that crafted the strategic framework for the sustainable management of Nigeria’s public debts with the eventual achievement of US$18 billion debt relief in 2006.
He was also the lead officer for the resuscitation of the Federal Government Bond Issuance in the financial markets with sustained monthly issuance that has endured up until now.
He has equally served as senior special assistant to the Minister of Finance in the area of Policy and Institutional Reform, and served as Technical Adviser to the defunct National Economic Management Team (NEMT) from 2009 to 2011.
In this interview, he says that Nigeria’s current total public debt figure does not fully reflect the true and fair amount of the country’s actual domestic debts and the overall public debt stock, stressing that the country now runs the risk of sliding down the slippery slope into a debt overhang that could ruin the supposed gains of the historical debt relief of US$18 billion achieved in 2006. Excerpts:
What do you make of Nigeria’s rising public debts?
Nigeria’s public debt stock has been rising geometrically over the past few years. The country now runs the risk of sliding down the slippery slope into a debt overhang that could ruin the supposed gains of the historical debt relief of US$18 billion achieved in 2006. That historic debt relief was some sort of tabula rasa that should have provided us as a country the opportunity to reset and perfect our debt management policies and strategies towards ensuring that funds are raised at the lowest cost and minimum risk to government. Proactive fiscal measures have to be urgently forged and timely action taken to rein-in the current borrowing spree if the ominous economic clouds hanging in the horizon are to be quickly dispersed. Suffice it to say that a real and present danger exists for the country around issues of fiscal sustainability, financial fragility, credit ratings and the threat to inter-generational equity that requires unwavering leadership commitment and technocratic diligence to forestall. Issues of inter-generational equity have to be given serious consideration and prominence in policy-making to the extent that government is a continuum and held to be a corporation sole with common seal and perpetual succession. Any debt incurred by one government automatically transfers to the next government and so on unto future generations. So, future generations are bound to be negatively affected by debt burdens incurred from current borrowing activities, especially where there are no corresponding infrastructure or social investments to show for the borrowings. According to the official figures released not too long ago by the Debt Management Office (DMO), Nigeria’s public debt stock now stands at a worrisome US$83.88 billion (N25, 701, 645. 74 Trillion) as at end-June 2019. Domestic debts account for N56,720.03 billion (17,379,015.91 trillion): 67.62 per cent, whereas the share of External (foreign) debts was US$27,162.63 (8,322,629.83 trillion): 32.38 per cent of the total public debt stock for the period. Similar official figures released four years ago in mid-2015 indicated the total public debt stock as standing at US$63,806.45 billion (N12,118,849.45 trillion) as at end-June 2015. External debts stood at US$52,949.93 billion (N10,428,489.32 trillion), while US$10, 856.52 billion (N1,690,360.09 trillion) was attributed to domestic debts for that period.
What is the implication of the country’s rising debt profile?
The implication of the rise in total public debts from US$52,949.93 billion to US$83.88 billion between 30th June 2015 and 30th June 2019 is that there has been sustained additions to the total debt stock amounting to about US$20 billion over the period of four years from June 2015 to June 2019. The data also reveals that the seemingly unbridled borrowing activities have been occurring more in the domestic debt market that has had a very steep rise in its stock of debts from US$10, 856.52 billion (N1,690,360.09 trillion) to N56,720.03 billion (17,379,015.91 trillion) between end-June 2015 and end-June 2019. Apparently this steep rise may have resulted from sustained increases in the funding of large budget deficits through the Federal Government Bonds issuance and the Nigerian Treasury Bills (NTBs) markets over the four years period. Such a pattern of over reliance on Federal Government Bond issuance and NTBs to fund large fiscal deficits does not fully satisfy the different criteria and objectives for resuscitating government securities market. It is true that one of the objectives of activating the bond market was to discourage government from using ‘ways and means advances’ (overdraft facilities with the Central Bank) to fund budget deficits as this translates to printing high-powered money, which is both costly and inflationary. Government was to face market discipline in raising funds from the domestic markets through bond issuance.
How would you rate the Federal Government’s bond issuance?
Government bond issuance is now seemingly being abused since there is a lack of viable alternative financial instruments in the market. Government bonds are usually issued with ‘full faith and credit’ meaning that they are theoretically risk-free financial instruments that are sure to be repaid at maturity. In the worst case scenario the government can mint money to redeem such debt instruments. So, the brokers and primary dealers who mostly ‘mark their trades to the market, trade on the margin accounts and gain from the basis point spreads’ are happy with increased government bond issuance inasmuch as it provides them better opportunities for making more profits from their trades. Other key objectives for activating the domestic debts markets such as deepening and broadening the market in terms of liquidity and instruments, and providing a benchmark interest rate from government securities for pricing private sector and corporations bonds and financial securities are now given scant attention. A well developed market in that direction would have seen increased issuance of both private and public corporations bonds outside just the central government. Municipals or local government areas, universities and top public corporations would have been better placed to access funds from the market for their expansion, modernization and development activities. It is also noteworthy that the fresh surge in accumulating expensive foreign commercial debts through Eurobond and Diaspora bonds issuance, as well as procuring bilateral loans from China EXIM Bank and the Islamic Development Bank are all financial time bombs waiting to explode.
In your assessment, is the government prudent in its borrowing?
Imprudent borrowings can only portend grave dangers for the country in the near future, especially where the loans are mismanaged or failed to deliver the expected social or economic returns on their investments. Chinese loans, for instance, are known to contain destructive covenants and clauses in the fine-prints of their agreements that most of the developing countries in the hasty desire and eagerness to obtain quicker loans mostly fail to read and carefully scrutinize at their eventual detriment. The Chinese seems only interested in off-loading their surplus labour, selling manufactures and scheming off natural resources from the developing countries for pittances. While pretending to offer assistance, they actually extract full benefits and lock such borrowing countries into a debt trap that will often lead to asset seizures as is already being witnessed in some of their debtor countries around the world. They equally have an eye to future world dominance and are using these loans as a bait to gain influence and control since aid and debts are like strings that tie the receiver to the giver. Chinese loans have to be approached with serious caution.
What is your take on the often over-subscribed Euro-bonds?
It is also naively touted that the over-subscription experienced with our off-shore bond issuance depicts confidence in the economy or the government. Not necessarily as investors sentiments are mostly primed only towards earning good returns. It is as well a simple principle of finance that the higher the risk the higher the returns. So, risk-loving investors would invest even in highrisk situation if the returns provide sufficient compensation for the risk. Importantly, interest rates have been mostly very low in nearly all of the advanced western economies post 2008 financial crisis to date. So, any offering in their markets at higher interest rates as seen with most Eurobond offers by developing countries would naturally attract over-subscription. The investors care less about the risk in this instance because of these countries’ foreign assets and reserves that can be seized in event of a sovereign default. So, therein lies the magic and farce about over-subscription of our Eurobond offers.
Is Nigeria’s public debt sustainable?
Surprisingly, the almost too simplistic and banal argument being advanced from some official quarters here in Nigeria is that the country’s public debt is sustainable. That is, it is still within the sustainability thresholds of the debt-to-GDP ratio. As a debt management and public finance expert, I have serious intellectual reservations about the absolute validity of debt-to-GDP ratio as a true and accurate measure of debt sustainability especially for developing countries. I hope to engage the relevant multilateral institutions and international development agencies, including the World Bank and the International Monetary Fund for a review at an appropriate time and forum.
The debt-to-GDP ratio basically divides total public debts by the GDP of a country. A country’s debt is deemed to be either sustainable or unsustainable if the ratio falls within or outside certain predefined thresholds. But the perplexity is in the fact that GDP defines the value of goods and services produced by the entire country over a defined period of one year (includes public sector, private sector and households), whereas public debts are wholly government or public sector debts.
How would you analyse the government’s usage of borrowed funds?
Nigerians would be hard-pressed pointing to any outstanding achievements recorded from borrowed funds in the last four years with almost US$20 billion in additional debts, quite apart from oil & gas revenues, as well as revenues from taxation and other sources earned over the past four years. We ought to draw more lessons from history to positively shape our development outcomes as a country. The economic reconstruction of Europe after World War II gulped US$12 billion in aid from the United States starting in 1948 under the four years Marshall Plan.
The amount which is equivalent to about US$128 billion in today’s dollar terms was divided among the participant states roughly on a per capita basis. Germany which was one of the worst hit by war bombardments and economic crises received 11 per cent (about US$13 billion in today dollar terms) and made significant and evident progress with the reconstruction of WWII ruins and economic recovery. Yet, we have borrowed as much US$20 billion in about the same four-year period as a country with relatively very little to show for it in terms of our infrastructural and development landscapes? Something must be wrong somewhere that calls for a rethink and serious strategizing to truly get us out of the labyrinth.
What should be done to remedy the situation?
What is to be done? Of a truth beyond prudent debt management, the issues dovetail into good governance, public accountability and overall economic brinkmanship. If we are to get it right then the focus should be on crafting smart and innovative economic and institutional reforms policies that can truly move the country forward and put us on the path of inclusive growth and sustainable development.