ABSTRACT
This study is on Debt
Management in Nigeria
from (1960 – 2005) challenges and prospects. This study seeks to determine how
and what contributed to Nigeria
public debt, both internal and external. The study is a survey research. The
study randomly selected three organizations responsible for managing debt. A
sample of 364 was selected from a finite population by yamene’s statistical
technique. Questionnaire was developed for soliciting information from the
respondents. A test-retest method was used to make the questionnaire reliable,
percentages were used to analyze the biodata and question items while X2
Test of a contingency table were used to analyze the hypotheses. This study
found out that Nigeria is not heavily indebted, corruption, inadequate
resources are not the challenges, poverty reduction, effective fiscal and
monetary policies, plus sustainable economic growth are not prospects, that
debt reschedule, debt buy back and debt conversion programme are not ways of
managing Nigeria external debt. This work concludes that deficiencies in
managing our debt by debt agencies, non centralization of the offices, and
functions/activities, plus unpatriotic attitude of past leaders, including the
rapid rate of technological innovation, and overnight policy reversals by past
dictatorships government. Recommendations are that debt management office, in
collaboration with other agencies managing debt in Nigeria should work out
guidelines and criteria for borrowing from both internal and external sources
by all tiers of government, even as the viability of the projects for which
loan may be obtained and determined through realistic feasibility studies.
Proper funding of the agencies and award for performance, adequate framework,
mainly targeted of price stability, and form a good habit that will say no to
corruption and pave way for effective communication and interaction for more
productivity.
TABLE OF CONTENTS
Cover Page
Title Page i
Approval page ii
Certification iii
Dedication iv
Acknowledgements v
Abstract vi
Table of Contents vii
List of Figures xi
List of Tables xii
CHAPTER ONE
1.1 Historical Background of the Study 1
1.2 Statement of the Problem 4
1.3 Objectives of the Study 5
1.4 Research Questions 5
1.5 Research Hypotheses 5
1.6 Significance of the Study 6
1.7 Limitation of the Study 6
1.8 Scope of the Research 6
1.9 Definition of Terms 7
References 9
CHAPTER TWO
REVIEW OF RELATED LITERATURE
- Conceptual, Issues, Nature and Meaning of Debt Management 10
- Genesis and Trend of Nigeria Public Debt 10
2.2 The Establishment and Operational Activities of the Debt Management Office (DMO) 11
2.2.1 The Establishment of Debt Management Office 2000 12
2.2.2 Objectives and Functions of Debt Management Office 2000 12
2.3 Prospects and Benefits on Debt Management Office in Nigeria 13
2.3.1 Debt Management Office’s Strategic Plan 2002 – 2006 14
2.3.2 Organizational Structure and Budget of Debt Management (DMO) 15
- Policy Framework for Debt Management 15
2.3.4 Legal/Regulatory Framework for Debt Management 15
2.3.5 Paris Club Data Reconciliation Negotiation of Debt Reconciliation 16
2.3.6 Bilateral Negotiation of Debt Management Office 16
2.3.7 London Club and Commercial Debts 16
2.3.8 External Relations Activities of DMO 17
2.3.9 Debt Conversion Activities 18
2.3.10 Debit Service Payments Activities 18
2.3.11 Debt Relief Campaign/Waiver 18
2.3.12 Domestic Debt Management Work Plan 19
2.3.13 Significant Achievements of Debt Management 2002 – 2006 DMO 20
2.4 The Need for External Debt Acquisition in Nigeria 22
2.5 Ways and Methods of Contracting Public Debt (DMO 2004:2). 23
2.6 Structure and Composition of Nigeria Public Debt D.M.O 2004 24
2.7 Different Foreign Lending Institutions to Nigeria 28
2.8 Managing Paris Club Debt and Data Reconciliation D.M.O Data Based 2000 – 2005 29
2.9 Domestic Debt Operation and Capital Market Development (D.M.O) 2005 30
2.9.1 Domestic Debt Profile 30
2.10 Holding of Domestic Public Debt in Nigeria 31
2.10.0 Percentage Composition of Domestic Debt 32
2.10.1 Central Trust of Current Domestic Debt Programme 32
2.10.2 Issues of Capital Market Development 33
2.10.3 Meeting the Challenges of Borrowing from the Capital Market 35
2.10.4 Rationale for Issuing Bonds 35
2.10.5 Benefits of Bond Issuing to the Economy 36
2.10.6 Elements of Domestic Debt Problem in Nigeria 32
2.11 Nigeria External Policy and its Implementation 37
2.12 Guidelines for Borrowing by Federal, States and Locals Government and Implementation 38
2.13 projects Financed by Paris Club Loan 40
2.14 Problems and Challenges in Achieving Efficient Debt Management in Nigeria 41
2.15 Characteristic of Efficient debt Management 44
2.16 The Dynamics of Nigeria External Debt 46
2.17 Indicators of Severity of Nigeria Debt Burden 47
2.18 Fundamentals and Immediate Factors that Plugged in Nigeria into Debt Crisis 48
- Strategies Adopted so Far at Managing Nigeria External Debt 50
References 55
CHAPTER THREE
RESEARCH METHODOLOGY
- Introduction 56
- Research Design 56
- Population of the Study 56
- Sampling Procedure 57
- Sample Size Determination 57
- Sources of Data 58
3.7 Description of Research Instrument 59
3.8 Validity of the Research Instrument 59
3.9 Reliability of the Research instrument 59
3.10 Method of Data Analysis 60
References 62
CHAPTER FOUR
PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA
4.1 Introduction 63
4.2 Questionnaire Distribution 63
4.3 Background Information of the Respondents 63
4.4 Analysis of Items in the Questionnaire of Section B 66
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Introduction 80
5.2 Summary of Findings 80
5.3 Conclusion 80
5.4 Recommendations 81
5.5 Suggestions for Further Studies 81
References 82
LIST OF FIGURES
Figure 2.1 Organizational Structure of Debt Management Office (DMO) 15
Figure 4.1 Acceptance Region/Rejection Region 72
Figure 4.2 Acceptance Region/Rejection Region 75
Figure 4.3 Acceptance Region/Rejection Region 77
Figure 4.4 Acceptance Region/Rejection Region 79
LIST OF TABLES
Table 2.1 External Debt Outstanding By Creditor Type and concessionality 25
Table 2.2 Key Facts 31
Table 2.3 Domestic Debts, Analyzed by Types of Instruments and Holders 31
Table 2.4 Analysis According to Category of Holders 32
Table 2.5 Summarily Indicators of Severity of Debt Burden of Nigeria in the Unfolding Twenty First Century 47
Table 2.6 Performance of Projects Financial by ICM Loan 49
Table 3.1 Population of the Respondents 56
Table 3.2 Sample Size Allocated to the Three Organizations 58
Table 4.1 Questionnaire Returned and not Returned 63
Table 4.2 Responses According to Sex 64
Table 4.3 Distribution According to Age 64
Table 4.4 Responses on Qualification 65
Table 4.5 Category of Job 65
Table 4.6 According to Years of Service 65
Table 4.7 Analysis of Question Item 7 66
Table 4.8 Analysis of Question Item 8 66
Table 4.9 Analysis of Question Item 9 67
Table 4.10 Analysis of Question Item 10 67
Table 4.11 Analysis of Question Item 11 67
Table 4.12 Analysis of Question Item 12 68
Table 4.13 Analysis of Question Item 13 68
Table 4.14 Analysis of Question Item 14 69
Table 4.15 Analysis of Question Item 15 69
Table 4.16 Analysis of Question Item 16 69
Table 4.17 Analysis of Question Item 17 70
Table 4.18 Analysis of Question Item 18 70
Table 4.19 Computation of Expected Frequency in Hypotheses One 71
Table 4.20 Computation of X2 for Hypotheses One 71
Table 4.21 Computation of Expected Frequency in Hypotheses Two 73
Table 4.22 Computation of X2 for Hypotheses Two 74
Table 4.23 Computation of Expected Frequency in Hypotheses Three 74
Table 4.24 Computation of X2 for Hypotheses Three 76
Table 4.25 Computation of Expected Frequency in Hypotheses Four 78
Table 4.26 Computation of X2 for Hypotheses Four 78
CHAPTER ONE
1.1 HISTORICAL BACKGROUND OF THE STUDY
Debt operationally, is defined as the Obligations owned by one country to another country, denominated in either local and /or foreign currency only or in both, comprising both domestic and external obligations (DMO,2002).
Debt management in Nigeria refers to the technical as well as the institutional arrangements involved in organizing both domestic and the external liabilities so that the debt service burden is maintained/contained witching a sustainable level (Omoruyi, 1997:358).
Debt portfolio of Nigerian government is usually the largest financial portfolio in a country. It often contains complex financial structures and can create substantial balance sheet risk for the government. Large and poorly structured debt portfolio also makes governments move vulnerable to economic and financial shocks and have often been a major factor in economic crisis (IMT, 2003:10).
Together with overall macroeconomic policy debt management policy plays an important role in ensuring and maintaining long-term debt sustainability.
Appreciating the significant role that public debt management can play in helping countries or nations cope with economic and financial shocks. The International Monetary and Financial Committee (IMFC) has requested that staff from the international Monetary Fund (IMF) and the World Bank Work together in cooperation with national debt managements experts to develop a set of guidelines on public debt management to assist countries in their efforts to reduce financial vulnerability. The IMFC’S request which was endorsed by the financial stability forum in the year 2000, was made as point of a search for board principles that could help governments improve the quality of their policy frame works for managing the effects of volatility in the international monetary and financial system, meanwhile contrast to 15 to 20 years ago, countries are now much more focused on managing the financial and operational risks inherent in their debt portfolio than was the case in the past. And the way in which the stock of debt is managed is becoming increasing sophisticated, especially in those countries levels or have experienced shock associated with the removal of capital flows.
This Institutional responsibilities for debt management vary from country to country. In some countries, the ministry of finance is in charge of debt management, while in others, debt management functions are shared by more than one agency (the Central Bank and Ministry of finance for the most part). And in others, all functions and activities of public debt management are charged to a sole agency.
Since 1999, President Olusegun Obasanjo has visited the world’s financial capital many times, seeking debt forgiveness and out the least, some meaningful relief. To ensure our creditors that Nigeria is a responsible country, he has ensured that we service our huge debts regularly. But all his effects in this regard so far until recently have been futile. The creditors would not bulge. They insisted we must pay up even though much of the debt is dubious because it is based on very dodgy figures and accounts. This is why the president become increasingly exasperated by their intransigence and sheer bloody mindedness, and public opinion was hardening around the popular but dangerous proposition that Nigeria unilaterally repudiates the debt.
According to the Debt management office (D.M.O, 2004), Nigerian’s foreign debt increased to US $36 billion in the first quarter of the year 2005, in spite of the country paying close to US $40 billion in the past two decades. As reported by “THE punch” of march 14, 2005, the D.M.O Director-General, Dr Mansur Muhtar, attributed the increase to the continuing freefall of the dollar in which most of the debt is denominated. Dr Muhtar disclosed to the punch, that “an illustration is that (as at) December 2000 when we were going to reschedule our debts with Paris club, we found out that out of that was being rescheduled, about 24% was penalty and 22% was interest. Another 48% constituted arrears, which are payments that should have been made. Only 7% was really the outstanding (debt).” This means that the penalty and interest equal US $ 10 billion. At this rate, by the time the debt is finally retired, Nigeria would have bettered of closed to US $ 100 billion.
Such brazenly organized robbery perpetrated on mostly poor helpless countries by the international financial system controlled by the developed nations is worse than waging a war on a country, sucking it and pillaging its resources. Yet the original debt, most of which was accumulated during the second Republic to this debt burden, the Nigeria economy continues to experience strains and stresses arising largely from debt burden and debt over hang. Despite the debt management’s efforts put in place by debt management authorities since 1983 to deal with the debt problem and challenges.
The scenario is, indeed, frightening. It is within this context that the resolution of the house of representatives early March 2005,asking the government to suspend further debt payments becomes understandable, even if it was not in the long term best interest of the country. If nothing else the resolution served notice on the creditors that the country could not continue to supinely beg for some relief without some concession from them. As Austin Opara, deputy speaker of Nigeria house of Representative was reported to have posited, “THE debt is not sustainable, so something must be done, otherwise we cannot pay.
However the creditor were unmoved by the country’s plan that the debt has become an unbearable burden that is draining badly needed resources for development. In their estimation, Nigeria does not qualify for even debt relief because it is not a poor country. To this end and even as Nigeria wriggles under the clutches of an overwhelming debt over hang.
Nigeria is rich but the reality is that a huge proportion of its populate is desperately poor. While the intransigence of the creditors is hard to take. There is however, some merit in their argument that Nigeria can conveniently service its debts and still have a lot of funds left for development, if only it could put its financial management regime in shape and reduce corruption to the barest minimum.
This is heavily the crux of the issue. Corruption is the demon that has the country in a suffocating embrace and before whom Nigerians bow. The highly phenomenon has locked up the country in a crushing state of arrested development. Estimates of public funds stolen in the last 35 years and stashed away in numbered bank accounts abroad range from US $100 billion to US $ 200 billion. During the same period, the country earned approximately US$500 billion with very little to show for it in development terms” (Noso, 2005).
Thus while Obasanjo is boringly making his plea for our debts to be out rightly cancelled on written off, many of our elected public officers continue to globetrot in the most lavish style of Arabian princes. At any given time, half of the governors in Nigeria are out of the country for all kinds of nonsense reasons. And in the last six years. (1999-2005) Nigerian “big men and women” have poured hundreds of millions of dollars into prime real estate in Europe, North America, middle east and, lately, south Africa. Hence the contention that Nigeria should the accorded the same consideration over external debt payment has been laughable and unpersuasive. As intolerable as the situation is, a unilateral repudiation of the debt is not practicable doing so would get the country frozen out of the global financial system, and that would be irreparably damaging to an economy that is dangerously fragile.
The choice of Nigeria is actually limited. We have to continue to engage with our creditors to get a significant reduction of debts, while at the same time meeting our payment obligations. Nigeria’s pain from a killing debt overload is self-inflicted. Again considering the pains being inflicted on the citizenry by the debt overhang, it becomes absolutely necessary for Nigerian government to strengthen its action against the continuous rise of the nation’s debt. Thus according to the Economic and intelligent unit EIU (2005), the combined impact of a weak dollar, the expected invade in world bank lending to Nigeria and the build up of interest arrears may push the country’s external debt stock to a new high of US$39.5 billion in year 2006 if urgent, pragmatic and concerted effort is not made to remedy the situation. On the whole the IMF and World Bank (2001) specified that the basic objective of public debt management is to ensure that the government’s financing needs and its payment obligations owe met at the lowest possible cost over the medium to long run consistent with a prudent degree of risk.
STATEMENT OF THE PROBLEM
