The Director General, Debt Management Office (DMO), Dr. Abraham Nwankwo, has said huge borrowing by some states through bonds and other sources for developmental projects does not make them a risk to the economy.
Speaking in Kaduna at a retreat for members of the Finance Correspondents Association of Nigeria (FICAN), he insisted that no state currently had debt, which is unsustainable.
He spoke against the backdrop of public concerns over effect of states’ increased appetite for the bond market.
He said: “The fact that you have three states, and one state’s debt is higher does not mean that something is wrong with that state. That’s why we talk of ratios. After all, if you take Lagos State, whose domestic debt is higher-Is Lagos State not the best performing state in the country, in terms of their use of resources to develop the state for the welfare of its people?
Continuing, he said: “Technically, it’s not right to say because their debts are higher, it’s a disadvantage; it is not, because you can see the value of the money they are borrowing in their state and in their streets. It is not correct to interpret that the states with higher debts have a higher disadvantage. No state has debt which is unsustainable. It’s a positive thing and not negative.”
He noted that the DMO had effective instruments to check excessive borrowing by states.
According to him: “Of course, states want to borrow but there is no state or their agencies which borrow without approval, and the borrowing guidelines are explicit. We have explicit guidelines for external and domestic borrowing. Nobody should lose sleep over that because there are enough regulation and control on borrowing. However, once money has been borrowed at all levels, it is the responsibility of everybody to make sure that monies are being used well.”
Nwankwo also justified the country’s increasing debt profile.
He said: “You should appreciate that there are natural rate of growth in the economy-you are looking at debt, are you looking at GDP? It’s like saying Dangote is borrowing more but you have not told me Dangote had built 20 more cement factories. You are not saying Dangote is also growing.
“The Nigerian economy too, the population is growing and government has to pay more teachers. So the economy is growing and the population is also growing. Nigeria’s GDP is one of the best performing in the world over the past five years and what we are saying is that the economy is growing over the past seven years at an average of more than 6 per cent per annum. So when you look at the rate of growth of debt without looking at the rate of growth of GDP and other macroeconomic variables, you are missing the point as an economist.”
According to him: “The objective of the public debt management is not to encourage governments to borrow. Our objective is to create an environment for the private sector to borrow and grow the economy. So if your state is well-organised and your economy is growing well and you collect enough revenue from tax, then it is better for you not to borrow. But if you have the right model that you know that instead of having five secondary schools, that you can manage the economy well; that you can borrow and build ten secondary schools and cater for more of your people; that instead of being analogue in your secondary school, you want to go digital because you know that if you go digital, in the next 10 years, you’ll produce enough scientists that your state will boom and become of the most advanced states in the world, then you can take that decision, the decision is yours.
Continuing, he added: “But the objective of public debt management office is not to encourage you first to borrow. If we have any objective of encouraging anyone else to borrow, it’s to create an environment for the private sector to borrow and grow the economy without creating debt for the public. If any state is able to manage its resources well, and it doesn’t need to borrow we should encourage that state to continue that way."