Again, Okonjo-Iweala Warns Against Inter-Bank Lending , Decries High Domestic Debts 2 hours ago WORRIED by the growing public domestic debt stock, particularly by the States, their exposures to banks and their debt sustainability or ability to service the obligations, the Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo Iweala, has warned banks and other lenders in the country to stop lending to State Governments, particularly for frivolous activities. According to her: “We enjoin banks and other lenders to be careful and prudent when lending to ensure that this is done within the existing rules, regulations and guidelines.” This advice to the Banks is coming after the Central Bank of Nigeria (CBN) about two months ago issued the same warning to banks and went ahead to raise the stakes and conditions for banks who continue to lend to States. These warnings by both the monetary and fiscal authorities in the country is coming on the heels of the outcome of the debt sustainability conducted in the 36 States of Nigeria and the Federal Capital Territory (FCT) by the Debt Management Office (DMO), which spelt very dangerous signals concerning some States’ debt status in relation to their revenue flows. States like Bayelsa, Cross River, Zamfara, Ebonyi, Delta and Kogi are of the States identified in the DMO Report, which was concluded in December last year and exclusively obtained by The Guardian early March this year. The Finance Minister who restated the need to be more cautious in the contracting of new credit lines, particularly locally, expressed disgust that the current rising debt profile of the country was rubbishing the gains of the debt relief the country gained between 2004 and 2006. Her displeasure is contained in a statement release yesterday on Nigeria’s public debt data. She said: “In 2004, prior to the Paris Club debt relief, Nigeria’s overall debt stock was very high. External debt stood at US$35.9 billion while the stock of the domestic debt amounted to US$10.3 billion resulting in a total of about US$46.2 billion or 64.3% of GDP excluding contractor and pension arrears. “After the successful debt relief initiative, Nigeria’s stock of foreign debt declined dramatically. Indeed, in August 2006, when I left office, Nigeria’s foreign and domestic debts amounted to US$3.5 billion and US$13.8 billion respectively - a total of US$17.3 billion or 11.8% of GDP. “By August 2011, when I resumed for the second time as Finance Minister, the domestic debt stock had grown substantially to US$42.23 billion, while the external debt was still a modest US$5.67 billion. This implied a total debt stock of US$47.9 billion or 21% of GDP. Note that while the debt stock grew, our national income also grew so that debt to GDP ratio (the parameter used globally to measure a country’s debt sustainability) remains modest and manageable. “Both federal and state governments borrow domestically and externally. However, no state government can borrow externally unless guaranteed by the Federal Government. Similarly, state governments’ domestic borrowing is subject to federal government analysis and confirmation - based on clear criteria and guidelines that a state can repay based on their monthly FAAC allocations and internally generated revenues (IGR). “But let me repeat that we shall never be complacent about our national debt. We need to be constantly vigilant to limit the amount of debt and create room for the private sector instead to borrow. As such, we need to stay focused on three main priorities. “First, we should continue to monitor our external borrowing and ensure that we do not slip back to our high indebtedness prior to the debt relief programme. As I mentioned earlier, the External Borrowing Plan, helps to address this concern by ensuring that we always have a comprehensive, transparent view of our foreign borrowing. As at now, our external indebtedness is low at $6.67 billion or about three per cent of GDP. “Second, we should closely continue to monitor and limit our domestic debt, and ensure that it stays within a prudent and conservative range. We should pay off debt that is due to the extent of our ability. “And third, we should also continue to closely monitor borrowing by states to ensure that the debt burdens of our state governments remain within manageable levels and that borrowings are applied to specific projects that yield results for citizens of the state. In that regard, we enjoin banks and other lenders to be careful and prudent when lending to ensure that this is done within the existing rules, regulations and guidelines,” she said.
Posted on: Fri, 07 Jun 2013 22:51:19 +0000
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