BREAKING: States Very Weak In Debt Management, Financial Transparency Says CBN

BREAKING: States Very Weak In Debt Management, Financial Transparency Says CBN

Save Our Nation SON

May 30, 2023

The Central Bank of Nigeria (CBN), on Tuesday, said strategic efforts must be made to fortify States’ capacity in the management of borrowing, debt recording, public financial management reform, and the development of debt management capacity.

The CBN Governor, Mr Godwin Emefiele, stated this in Abuja at the opening ceremony of the training on Subnational Debt Management Performance Assessment (SN DeMPA) Methodology Tool organised by the West African Institute for Financial and Economic Management (WAIFEM), in collaboration with the World Bank.

Represented by the Director, Monetary Policy Department of the CBN, Dr Mahmud Hassan, Emefiele said the legal, regulatory and procedural frameworks for state borrowing are incomplete, adding that capacity limitations impede the efficacy and efficiency of public debt management.

He lamented that State government legislations in Nigeria do not adequately define the purposes of subnational borrowing or regulate the issuance of sovereign guarantees, posing substantial fiscal risks.

“In general, state institutions lack sufficient capacity to execute their statutory obligations, and the increasing size and risk exposure of state debt portfolios underscores the urgent need for sound debt management practices and increased capacity among subnational government agencies”, he said.

According to the CBN Governor, as of 2019, only seven out of the 36 states had completed subnational Debt Management Performance Assessments (DeMPAs).

These assessments, he noted, comprehensively evaluate the government’s debt management functions across five areas, dimensions.

“The states of Cross River, Edo, Lagos, Kaduna, Kano, Niger, 13 indicators and 31 Ondo, and the FCT participated in the DeMPAs between 2013 and 2018.

“The DeMPAs revealed significant weaknesses in institutions and practices of subnational debt management in Nigeria. On average, only three of the 31 dimensions of debt management as defined by the DeMPA methodology were satisfied by Nigerian states.

“In nearly all the 13 indicators, including governance quality, borrowing processes, financial management, and operational risk control, Nigerian states performed below the global average. In particular, the legal and institutional framework, audit functions, coordination with fiscal policy, and recordkeeping of debt exhibit serious deficiencies.

“The Federal authorities and development partners have a crucial role to play as valuable partners in building subnational capacity for debt management in Nigerian states.

“Consequently, this workshop comes at an opportune moment to reinforce the capacity-building agenda for state-level debt management, which is essential to achieving an overall sustainable national debt portfolio”, the CBN Governor added.

Also speaking, Dr. Baba Yusuf Musa, Director General of WAIFEM, said the training was designed to provide in-depth knowledge in the methodology and operational modalities of the tool, rationale, scope, coverage, and application of the DeMPA tool and preparation of reform plans.

“It is expected, upon the completion of this course, that participants acquired a strong understanding of how to apply the DeMPA tool in assessing their state debt management performance and will also be able to apply the theory to specific state case studies. Furthermore, it is envisaged that participants will obtain practical understanding of the preparation of reform plans including sound practices in the field of debt management, and the rationale for the DeMPA framework.

He said WAIFEM has since undertaken institutional adjustments to address emerging capacity-building challenges in the region to serve the member countries better, particularly on issues related to among others, governance, institution building, regional integration, reserve management, new trends in global finance such as Fintech, and cybersecurity.

He said that the scope of sovereign debt management, in today’s world, is much wider. “Though still a subset of fiscal policy, debt management at both the national and subnational levels of government is seen as a separate public policy area with its own objectives. Its objective is much more focused on raising the required amount of funding, achieving its risk and cost objectives, strategy development, and accountability (producing accurate, timely and comprehensive debt data), development of the domestic debt market and execution of the strategy (borrowings and other transactions).

“In addition, both national and sub-national debt should have an organizational structure that is conducive for debt portfolio analysis, a legal framework that includes clear debt management objectives, authorization to borrow and undertake other debt management activities and to issue loan guarantees, requirement for strategy development, and accountability, reporting and should be manned by skilled staff which adequate capacity to undertake risk analysis”, he explained.