Emefiele Seeks Urgent Debt Management Reforms at State Levels Amid Increasing Exposure

The Governor of Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, yesterday, urged the sub-national governments to urgently strengthen their capacity for debt management and boost transparency around the institutional framework for borrowing.

Emefiele said state institutions generally lacked sufficient capacity to execute their statutory obligations, adding that the increasing size and risk exposure of state debt portfolios underscored the urgent need for sound debt management practices and increased capacity among subnational government agencies.

Speaking at the opening of the Sub-national Debt Management Performance Assessment Training for participants from states and FCT, organised by the West African Institute for Financial and Economic Management (WAIFEM), in collaboration with the World Bank and International Monetary Fund (IMF), Emefiele said states’ legal, regulatory and procedural frameworks for borrowing was incomplete, stressing that capacity limitations further impeded the efficacy and efficiency of public debt management.

Represented by the CBN Director, Monetary Policy Department, Dr. Hassan Mahmud, the CBN governor noted that, substantial progress had been made in enhancing state-level debt management institutions and practices since 2007, particularly with the establishment of Debt Management Units (DMUs) in all the state governments and FCT.

He pointed out that significant challenges remained in the management of borrowing, debt recording, public financial management reform, and the development of debt management capacity.

He said state government legislation in Nigeria does not adequately define the purposes of subnational borrowing or regulate the issuance of sovereign guarantees, posing substantial fiscal risks.

Emefiele said, “As of July 2019, only seven out of the 36 states had completed subnational debt management performance assessments (DeMPAs).

“These assessments comprehensively evaluate the government’s debt management functions across five areas, and 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.”

According to him, the DeMPAs revealed significant weaknesses in institutions and practices of subnational debt management in the country, adding that, on the average, only three of the 31 dimensions of debt management as defined by the DeMPA methodology were satisfied by the states.

Emefiele added that in nearly all the 13 indicators, including governance quality, borrowing processes, financial management, and operational risk control, the states performed below the global average.

He said, “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.”

Director-General, WAIFEM, Dr. Baba Musa, while speaking, said given that there had been three different shocks affecting the global economy, the development has necessitated an increase in public borrowing.