States weak in debt processing, says CBN
The Central Bank of Nigeria (CBN) has revealed that Nigerian states are weak when it comes to executing their debt strategy.
Dr. Mahmud Hassan, CBN’s Director in charge of Monetary Policy and Member, Technical Committee (TC) of the Board of Governors of West African Institute for Financial and Economic Management (WAIFEM) made this disclosure in Abuja on Tuesday.
He spoke at the opening ceremony of the World Bank/WAIFEM Sub-National Debt Management Performance Assessment (SN DeMPA) Methodology Training.
While delivering his keynote address, Dr. Mahmud Hassan said Nigerian states “performed below global average in financial management, governance quality and borrowing processes”.
He added that “legal and institutional framework, audit functions, coordination with fiscal policy, and record keeping of debt by state governments have exposed the level of deficiencies among the states as it concerns their ability to manage their debts”.
To show that the states are not serious with their borrowing processes, Mahmud Hassan revealed that “as of July 2019, only seven out of the 36 states had completed subnational Debt Management Performance Assessments (DeMPAs)”.
These DeMPA assessments he said “comprehensively evaluate the government’s debt management functions across five areas, 13 indicators and 31 dimensions.
Cross River, Edo, Lagos, Kaduna, Kano, Niger, Ondo, and the FCT participated in the DeMPAs between 2013 and 2018.
The CBN Chief said “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.
He added that “the legal and institutional framework, audit functions, coordination with fiscal policy, and record keeping of debt’ by the state governments has exposed their serious deficiencies in these fields.
Mahmud Hassan appealed to the federal government and development partners to help “in building subnational capacity for debt management in Nigerian states.
The CBN and its partners he said have seen that “sub national debts also build into the federal debts and we see that also playing a large part in terms of the stock of debt”.
“So, I think it is important that we have that transparency, institutional capability and strength to be able to follow through with the processes of either debts securing or management and debt pay back”.
Mahmud said the training programme “is very important for state personnel, especially the civil service to be well acquainted with those intricacies of debt management and debt sustainability”.
Dr. Baba Yusuf Musa, Director General West African Institute for Financial and Economic Management (WAIFEM) said “both national and sub-national debt should have an organizational structure that is conducive for debt portfolio analysis”.
In his words “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 should be manned by skilled staff with adequate capacity to undertake risk analytically” he said.
The DeMPA programme he said is aimed at improving the capacity of states to manage their debts.
Dr. Baba Yusuf Musa was happy that the states are demonstrating the willingness to learn. According to him, “I think the response of the state to this training is overwhelming.
“We actually have been over subscribed, we targeted building the capacity of at least half of the states in Nigeria including the FCT but because of the demand that we have for this programme we had to increase the number of states.
“Now we have 17 states that are being trained on this specific module of the training. Later in the year the remaining states will also be called on board to have similar training.
“Each state is sending at least two representatives plus the FCT, and we do hope that they will improve their debt management” Dr Baba said.
