Status Report & Key Achievements of the Debt Management Office (DMO)
1.0 Institutional Background
Before the year 2000, the management of Nigeria’s debt was characterized by systemic and structural deficiencies. The debt management functions were split across several Government departments, including the Federal Ministry of Finance, the Office of the Accountant-General of the Federation and the Central Bank of Nigeria. The diffused responsibility and poor coordination implicit in such an arrangement, created a number of challenges and shortcomings, some of which were:
Operational inefficiencies and poor coordination;
Inadequate debt data recording system and poor information flow across agencies, resulting in inaccurate and incomplete loan records;
Extreme difficulty in the verification of creditors’ claims due to conflicting figures from various bodies handling the debt management function;
Complicated and inefficient debt service arrangements which created protracted payment procedure and often led to penalties that added to the debt stock and the pains of servicing; and, lack of a coherent and well-defined public debt management strategy.
In order to redress this unwholesome state of affairs, the Federal Government established the Debt Management Office (DMO), in October 2000, which centralises the entire nation’s debt management functions in a single, semi-autonomous and professionally run agency, charged with the following responsibilities:
Maintenance of comprehensive, accurate and timely records of the country’s debts;
Prudent management of the debt portfolio and ensuring its effective servicing;
Negotiating with, and ensuring debt relief from creditors;
Assessing and advising government on new borrowing;
Advising government on national debt strategy and borrowing policy; and,
Issuance of FGN domestic debt instruments tradable in the capital market and having long term tenor, with a view to deepening the capital market and eliminating the monetary financing of deficits.
2.0 Mandate & Functions
The mandate of the DMO, as specified by the Act establishing the Office – the Debt Management Office, (Establishment, ETC.) Act, 2003, includes the following:
- Maintain a reliable database of all loans taken or guaranteed by the Federal or State Governments or any of their agencies;
- Prepare and submit to the Federal Government a forecast of loan service obligations for each financial year;
- Prepare and implement a plan for the efficient management of Nigeria’s external and domestic debt obligations at sustainable levels compatible with desired economic activities for growth and development and participate in negotiations aimed at realizing these objectives;
- Verify and service external debts guaranteed or directly taken by the Federal Government;
- On an agency basis, service external debts taken by State Governments and any of their agencies, where such debts are guaranteed by the Federal Government;
- Set guidelines for managing Federal Government financial risks and currency exposure with respect to all loans;
- Advise the Federal Government on the re-structuring and re-financing of all debt obligations;
- Advise the Minister on the terms and conditions on which monies, whether in the currency of Nigeria or in any other currency, are to be borrowed;
- Submit to the Federal Government for consideration in the annual budget, a forecast of borrowing capacity in local and foreign currencies;
- Prepare a schedule of any other Federal Government obligations such as trade debts and other contingent liabilities, both explicit and implicit and provide advice on policies and procedures for their management;
- Establish and maintain relationships with international and local financial institutions, creditors and institutional investors in Government debts;
- Collect, collate and disseminate information, data and forecasts on debt management with the approval of the Board;
- Carry out such other functions which may be delegated to it by the Minister or by Act of the National Assembly; and,
- Perform such other functions which in the opinion of the Office are required for the effective implementation of its functions under the Act.
2.1 The Supervisory Board
The Act also provides for a 7-man Supervisory Board, chaired by the Vice-President of Nigeria and the Minister of Finance as the Vice Chairman. Other members are: the Attorney-General of Federation; 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 the DMO, who also serves as the Secretary to the Board. While the Board oversees and provides strategic direction for the DMO and approves its Policies, Strategies and Procedures, the Office reports directly to the Minister of Finance on operational matters.
3.0 Strategic Vision of the DMO
The Vision, Mission and Broad Objective of the DMO, as specified in its third Strategic Plan (2013-2017), are as follows:
Vision Statement: To be one of the leading Public Debt Management Institutions in the World in terms of best practice and contribution to national development.
Mission Statement: To manage Nigeria’s debt as an asset for growth, development and poverty reduction, while relying on a well motivated professional workforce and state-of-the-art technology.
Broad Objective: To ensure efficient public debt management in terms of a comprehensive, well diversified and sustainable portfolio, supportive of Government and private sector needs.
4.0 Nigeria’s Public Debt Performance, 2000 to 2014
4.1 Total Public Debt Stock Outstanding and Sustainability
Prior to the debt exit of 2005/2006, Nigeria’s debt had remained unsustainable as a result of the huge burden arising from the External Debt over-hang. By the end-2004, Nigeria’s external debt had risen to about US$35 billion, representing over 40 percent of the GDP. Given that debt over-hang has the potential of inhibiting public investment in physical and social infrastructure, and hampering private sector investments, Government had to explore ways to restructure and reduce the debt burden.
Hence, following the final exit from both the Paris and London club debts in 2006, the external debt of the country drastically reduced from an all-time high of about US$35 billion in 2004, with an external debt-to-GDP ratio of over 40 percent to about US$3.5billion in 2006 and an external debt-to-GDP ratio of 2.33 percent respectively. In like manner, the ratio of Total Public-debt-to GDP, also dropped from over 51 percent in 2004 to about 11 percent in 2006, and the debt level has remained robustly sustainable thereafter. The Table 1 and Figures 1 & 2 below, clearly show the nation’s debt profile and its sustainability levels vis-à-vis the international thresholds for the period, 2000 to 2014.
Table 1: Public Debt Portfolio, 2000-2014
|External Debt (N’b)
NPV of Ext. Debt/GDP (%)
|Domestic Debt (N’b)
|NPV of Dom. Debt/GDP (%)
|Total Public Debt (N’b)
|NPV of Total Public Debt/GDP (%)
* Ratio computation based on the rebased GDP figures of 2013 and includes States’ domestic debt
** International thresholds set for only External debt stock only, but for prudence, adopted by the Government for Total Public debt
*** Revised threshold introduced in 2012 by the World Bank for Total Public Debt, to include domestic debt
Figure 1: Total Public Debt Outstanding, 2000-2014 (US$’ Million)
Figure 2: Debt Sustainability Ratios Vs the International Thresholds
It is worthy to note that the ratio of Public Debt-to-GDP, which was 22.84 percent as at end-December, 2013 (pre-rebasing), significantly dropped to 12.65 percent (post-rebasing), and same ratio maintained as at end-December, 2014. This ratio compares very favourably with the global threshold of 56 percent for countries in Nigeria’s peer group, and has, thus, given an illusion of an expanded borrowing space. It is to be appreciated that the Debt Service-to-Revenue ratio needs to be kept under close watch, given that it was 25.20 percent as at end-December, 2014, against the applicable threshold of 28 percent. The Debt Service-to-Revenue ratio can be improved upon if the Government’s revenues increase. As macro-economic indicators have shown, the Public Sector Revenue is underperforming relative to the size of the economy (GDP) and this weakness if appropriately addressed, would further enhance overall debt sustainability.
5.0 Highlights of Major Activities & Achievements as at end-March, 2015
5.1 Execution of the DMO’s Mandate
Since commencement of operations in 2000, the DMO has pursued the execution of its statutory mandate with vigour and clarity of purpose, which has seen the Office recording landmark achievements in both the domestic and international markets. Amongst these are:
Securing debt relief in 2005, in which US$18 billion of external debt owed to the Paris Club of creditors was written off.
Formulation of a National Debt Management Framework (NDMF), 2008-2012, and a review of same, as well as, publication of the revised (2nd) NDMF, 2013-2017, incorporating debt management policies and guidelines.
Formulation and effective implementation of its Strategic Plans: 1st – 2002 to 2006; 2nd – 2008 to 2012; and, currently the 3rd – 2013 to 2017.
Maintenance of an accurate and up to date debt data that are published periodically.
Ensuring regular and timely servicing of the Government’s debt.
Restructuring of the domestic debt to include more longer-tenored securities, thereby extending the maturity profile of the domestic debt stock to up to 20 years, and reducing its re-financing risk.
The Office has adopted sound practices in public debt management, for which purpose it conducts an annual Debt Sustainability Analysis (DSA), in collaboration with other relevant stakeholders; and has prepared a Medium-Term Debt Management Strategy (MTDS), 2012-2015, which is being implemented. The current MTDS is aimed at achieving an optimal composition of external and domestic debt structure, and ensure low cost of Government debt, consistent with a prudent level of risk.
Issues on behalf of the Government, Sovereign Guarantees to support public-private-partnership projects.
Ensuring consistent and full funding of budget deficits through the issuance of Government’s securities.
In 2013, the Office engaged the services of KPMG Professional Services Ltd., to conduct an audit of its debt operations. The outcome proved very useful, as it validated the current debt operations, processes and practices and identified areas for further improvements which are being implemented.
To provide visibility for Nigeria’s public debt management activities, following the increased interest by foreign investors, the DMO in 2014 created dedicated web pages on Bloomberg and Reuters. Bloomberg and Reuters are respected global platforms for financial news.
The DMO’s technical competence has been widely recognized such that the Office now exports public debt management services to other African countries (so far, four countries have benefited, including the Republic of Sudan in 2014), thus, affirming Nigeria’s leadership role in Africa and its growing emerging global prominence in effective public debt management.
5.2 Private-Sector Support Initiatives
In addition, the DMO’s developmental roles aimed at enabling the private sector play its role as growth drivers in the economy, are effected through the creation of opportunities for corporates to access long-term capital in the domestic and international capital markets to sustain and expand their businesses, as well as, partner with the Government in critical sectors of the economy such as infrastructure. The Office’s contributions in this regard include:
Issuance of Federal Government of Nigeria Bonds in 2003 to resuscitate the domestic bond market and, thereafter, commenced regular Issuance and the development of an active secondary market, thereby establishing a sovereign yield curve extending up to 20 years.
Facilitating access to the International Capital Market for Nigerian corporates through the Issuance of its debut USD500 million Sovereign Eurobond in January 2011 and subsequently, another USD1 billion dual-tranche Eurobonds in July 2013, thereby creating benchmarks for corporate borrowers, providing information about Nigeria to international investors and attracting foreign portfolio investors and foreign direct investments into Nigeria.
Issuance in July, 2014, FGN Bonds in Global Depository Note (GDN) format for the first time, to diversify the investor base and attract foreign investors to the domestic securities market.
The outcome of these initiatives have led to the issuances in the domestic market by two supra-nationals – the International Finance Corporation (IFC), which issued a 5-year N12.00 billion Bond in March, 2013 and the African Development Bank (AfDB) that issued in June, 2014, a 7-year N12.95 billion, thereby establishing benchmarks for other international bond issuers to tap the growing Naira bond market.
5.3 Sub-national Debt Management Initiatives & Achievements
Another developmental role which the DMO assumed in its quest to ensure prudent management of resources and the adoption of sound public debt management practices at all levels of governance, is the development of a comprehensive programme for Sub-nationals which would enable them effectively determine their domestic debt stock and manage it as a matter of routine.
The Sub-national Initiatives and Achievements include the following:
(i) The development of the Template for establishment of Debt Management Departments (DMDs), outlining the legal, institutional and human resource framework, necessary for a functional DMD.
All the 36 States and the FCT have established Debt Management Departments (DMDs), in conjunction with the DMO;
Most of the States have enacted enabling debt management laws, either by passing the Public Debt Management Law (PDML) or the Fiscal Responsibility Law (FRL), to give legal backing to operations of the DMDs.
(ii) The development of Sub-national Borrowing Guidelines which detail the responsibilities of all the stakeholders, and also outline the relevant laws supporting their responsibilities.
States and their agencies now apply these Borrowing Guidelines and adhere to the requirements for seeking access to funds from domestic capital market and the Commercial Banks.
(iii) The Creation of domestic debt databases for the States and the FCT.
Debt Data Reconstruction (DDR) exercises have been conducted in all the thirty-six (36) States, and the FCT. The DDR programme assists the States with the compilation, recording, analysing and reporting of debt data, all of which are crucial elements of effective debt management at the sub-national level;
For the first time, total domestic debt figures of the States and FCT were published for the year 2011. Subsequently, the 2012 and 2013 domestic debt of States have also been published and are available on the DMO website; and,
Institutionalisation of a framework for the Quarterly rendition of Domestic Debt Data by the States and FCT to the DMO.
(iv) Continuous Capacity Building for staff of States’ DMDs.
Workshops conducted on the use of MS Excel for debt data recording and reporting at the sub-national level.
Special Training exercises conducted for States that had been restructured and had new staff to be trained and/or States that have obvious skills gap needed for debt recording and reporting.
Debt Sustainability Analysis training also conducted for most of the States.
Sensitisation workshop and training programme conducted for relevant States’ Ministries, Departments and Agencies (MDAs), which were aimed at achieving accurate, reliable and timely domestic debt data submissions by the States’ relevant MDAs to the DMDs and subsequently to the DMO.
Overall, there is an enhancement of public debt management capability at the State level.
(v) Intensified sensitisation of all stakeholders, including banks and other regulatory authorities responsible for controlling States’ borrowings.
There is now a recourse to the Federal Ministry of Finance by Banks and other operators for clearance before granting loans or facilities to the States.
(vi) Conducting of Debt Sustainability Analysis on a State to decide whether or not to approve each request for new borrowing.
There is a drastic curtailment and mitigation of risk of over borrowing by the States.
5.4 International Recognitions & Awards
In recognition of the initiatives put in place by the DMO in developing the domestic debt market, especially, in providing liquidity for the FGN Bonds, some FGN Bonds are included in the J.P. Morgan’s Emerging Markets Government Bond Index – EM-GBI (in 2012), and Barclays Capital’s Local Currency Bond Index – LCBI (in 2013). There are now six (6) FGN Bonds in the J.P. Morgan’s EM-GBI and 11 in the Barclays LCBI. In January, 2015, J.P. Morgan placed FGN Bonds on the Index Watch List due to reduced liquidity in the Foreign Exchange (FX) Market, occasioned by FX policies introduced by the Central Bank of Nigeria (CBN) in December, 2014. While the CBN has taken measures to redress the issue, J.P. Morgan indicated that it will re-assess the situation between April and June 2015; and,
Receipt in February, 2014, of the prestigious Europe, the Middle East and Africa (EMEA) Finance Award for the Best Sovereign Bond in Africa in 2013, for the US$1 billion Eurobonds, which were successfully issued by Nigeria in July 2013, despite the turbulence and uncertainties prevalent then in the international capital market.
6.0 Challenges & Constraints
Inspite of the modest achievements recorded thus far, the Office has faced a number of challenges and constraints, which include the following:
Increasing cost of domestic borrowing arising from the current policy stance of the monetary authority, which translates to higher debt servicing costs, against the background that domestic debt accounts for about 86 percent of the total public debt stock.
Non existence of a Sinking Fund for redeeming maturing obligations, due to budgetary constraints. This has led to the current practice of refinancing maturing domestic debt obligations, which in part has been responsible for the high domestic debt stock.
Use of a rented office accommodation from another Government agency – the Nigerian Deposit Insurance Corporation (NDIC), instead of a befitting purpose-built own Office space. A solution is currently being pursued through a Public-Private-Partnership (PPP), based on a Build, Operate, Rent and Transfer (BORT) arrangement.
Funding constraints for most of its developmental initiatives, notably, its flagship programme for the States, in the area of building requisite public debt management capacity for staff of States’ DMDs, in a sustainable manner.
7.0 On-going Activities & Initiatives
Some of the key on-going activities and initiatives of the DMO, include:
Financing the proposed 2015 Budget Deficit and refinancing maturing obligations.
Issuance of about US$300 million Diaspora Bonds in 2015;
Sustenance of capacity building initiatives aimed at strengthening public debt management capabilities at the State level;
Implementation and operationalisation of the Bond Auctioning System (BAS), aimed at facilitating the issuance of FGN securities by the DMO, which had always been conducted on the Central Bank of Nigeria’s auctioning platform; and,
Conduct of the annual Debt Sustainability Analysis (DSA).
At inception in 2000, the DMO was confronted with numerous and daunting challenges on the external, domestic and sub-national debt management fronts. Many of these problems needed to be addressed urgently. Through a well thought-out programme of actions, as clearly enunciated in its various medium-term Strategic Plans (currently, at its 3rd phase, 2013-2017), the Office has been able to frontally address most of these issues and recorded many achievements and milestones within the limited time period. With a dynamic and pragmatic leadership, the DMO has effectively responded to the ever evolving dynamics in both the domestic and international markets, and it is, positioned, to contribute meaningfully and sustainably to the aspirations of Government.