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