By Bassey Udo
States of the federation have continued to perform poorly in debt sustainability practices due to their inability to prepare their Debt Sustainability Analysis (DSA) and Medium-Term Debt Strategy (MTDS), the Debt Management Office (DMO) has said.
Rather than pay attention to these two tools and approaches to support them in achieving the minimum requirements for the the debt-related Disbursement Linked Indicators (DLIs), the debt management agency said states’ adherence to the provisions of the Fiscal Responsibility Act on contracting their debts remained a major concern.
The Debt Management Office – Nigeria (DMO) is one of the government’s implementing agencies providing Technical Assistance (TA) by utilizing a combination of tools and approaches to support the State Governments to achieve the minimum requirements for debt-related Disbursement Linked Indicators (DLIs).
Speaking in Abuja on the topic “Paths to sustainable debt management: The States Fiscal Transparency, Accountability, and Sustainability (SFTAS) Programme approach”, the Director General of the DMO, Patience Oniha, said the states’ performances have been poor since 2018 when the Annual state debt sustainability analysis and medium-term debt management strategy were introduced.
Oniha, who was represented by a senior official of the agency, Isyaka Mohammed, lamented the inability of the State implementing state-level debt legislation to meet the three stipulated DLI criteria for strengthening public debt management and fiscal responsibility framework, namely DLIs 7, 8 and 9.
DLI 7 focused on strengthening public debt management and fiscal responsibility framework for the state governments, while DLI 8 was designed to improve the clearance/reduction of stock of domestic expenditure arrears of the state governments, ans DLI 9 was meant to improve the debt sustainability of the various states.
In terms of States that produced quarterly state domestic debt reports (SDDR) approved by the DMO on average two months after the end of the quarter, the DMO said for 2018, only the fourth quarter was assessed following the roll out of the new quarterly report template.
For the period between 2019 and 2021, the DMO said all four quarters were assessed, with quarterly state debt reports for Q2, Q3 and Q4 of 2020 accepted on average two months or less after the end of the quarter in 2020 and Annual state debt sustainability analysis published by end of December 2020.
The DMO said quarterly state debt reports were accepted on the average of two months or less after the end of the quarter in 2021 and Annual state debt sustainability analysis and Medium-term debt management strategy published by end of December 2021.
In 2018, the DMO described the States’ performance as good, in terms of submission of quarterly debt report within two months of the end of the quarter, as 19 out of 24 States were eligible.
In 2019, the DMO described the performance as excellent, as 31 of the 32 eligible States submitted quarterly debt report within two months of the end of the quarter.
In 2020, the performance was still adjudged good, with 15 States expected to meet the requirements for DLI 7.2, considering that the criteria became more stringent due to inclusion of Debt Sustainability Analysis.
In 2018, Oniha described the performance of the states, in terms of exercising responsibilities for contracting state debt, recording/reporting state debt, and fiscal and debt rules/limits, as fair.
A total of 10 states met the three and other businesses criteria for the debt sustainability legal framework.
The DG said the performance improved significantly in 2019, describing the performance of the states as great, following a cumulative 23 States that met the the criteria for the debt sustainability legal framework.
In 2020, she described the performance of the states as excellent, as indications are that 34 of the 36 States would meet the three criteria for the legal framework when the results are finally published.
A state’s public debt is considered sustainable if the government is able to meet all its current and future payment obligations without exceptional financial assistance.
To encourage the state to achieve sustainable debt, the federal government in 2018 introduced the grants to be paid under the States Fiscal Transparency Accountability and Sustainability (SFTAS) facility of the World Bank as an incentive.
In 2018, the DMO said legible states received $29.5 million grants for meeting the requirements of DLI 7; $1 million for DLI 8, and $24 million for achieving DLI 9.
In 2019, the agency said the legible states received a total of $84 million as performance based grants, made up of $51 million for achieving DLI 7; $7 million for DLI 8, and $25.5 million for DLI 9, bringing the total grants extended to the state governments to $138.5 million for the two years.
Despite the encouraging performance of the states, Oniha Identified states’ adherence to the provisions of the Fiscal Responsibility Act on contracting state debts as a major challenge to debt sustainability for the state governments.
Besides, she said the capacity and willingness of the state governments to prepare their Debt Sustainability Analysis (DSA) and Medium-Term Debt Strategy (MTDS) was equally a problem.
She called for the institutionalization of debt reconciliation with a standing committee comprising the staff of the DMO, Central Bank of Nigeria (CBN) the Federal Ministry of Finance and the Office oftheAccount- General of the Federation.
She said the biggest challenge to debt sustainability legal framework was the reluctance of the States to implement the important components of the law,by adhering to the responsibility for contracting State debts.
On Debt Sustainability Analysis and Preparation of Medium-Term Debt Strategy, the DMO DG said these are two laws in their early stages, as 2020 was the first year of preparing the DSA reports at the sub-national level, while 2021 for the MTDS.
She identified other challenges to include ensuring actual use of DSA and MTDS reports; ensuring that debt stock to revenue ratio remains low in absence of performance-based grants; arrears clearance still weak across most States, and general lack of motivation in the absence of performance-based grants.
To ensure debt sustainability among states,the DMO DG suggested engagements with States to ensure that Debt Management and Fiscal Responsibility Laws are implemented, while ensuring continuous capacity building on DSA and preparation of MTDS as well as .
Besides, she stressed the continuous sensitization of States on the benefits of DSA and MTDS; training for States on Debt recording and reporting;
engagement with the Commissioners of Finance and DG of Debt Management Offices at the States; employment of peer review, and ensuring debt sustainability and strategies on the agenda of the Nigerian Governors Forum.
