Nigeria: Debt Strategies and Their Role in Fostering Local Debt Market Development

Transcription

1 DEBT MANAGEMENT OFFICE NIGERIA Nigeria: Debt Strategies and Their Role in Fostering Local Debt Market Development By Dr. Abraham Nwankwo Director-General Debt Management Office (DMO) Abuja Nigeria A Paper Presented at a One Day Workshop on Enhancing Liquidity and Price Transparency in Local Bond Markets organized as Part of the Gemloc Investor Country Conference on Developing Local Currency Bond Markets in Emerging Economies Fairmont Towers Hotel, Cairo, Egypt, March 25, 2010

2 BACKGROUND INTRODUCTION DEBT MANAGEMENT DEBT MANAGEMENT STRATEGY AND SCOPE Scope: Nigeria Debt Management Office OBJECTIVES The national debt management strategy is limited (DMO) came into operation in The major objective of to the Federal Government. It excludes State Nigeria s debt Governments domestic debt and contingent In the first five years of its management strategy is liabilities. existence, it focused attention on to ensure that the securing debt relief in order to government financing Debt Strategy: reduce the nation s debt burden needs and obligations Until the historic debt exit, the debt strategy to sustainable level. are met at the lowest almost entirely focused attention on the After attaining the above possible cost, consistent reduction of the size and cost of the debt. objective, the DMO shifted its with a prudent level of Currently, the debt strategy focuses on priority to the overall objectives risk whilst ensuring debt concessional external borrowing, developing the of maintaining debt sustainability, sustainability. domestic bond market, support for the the resuscitation and The objective also development of sub-national debt management, development of the domestic includes providing and the maintenance of long term debt bond market, and support for support for the sustainability. sound sub-national debt development of Overall, the current debt strategy is a reflection management. domestic bond market of our existing borrowing practices and risk The post debt exit debt and sound sub-national appetite. New borrowing mainly comes from management objectives and debt management. domestic sources/market. strategy are enshrined in the However, there is an on-going initiative to raise DMO s 5-year ( ) $500 million in the International Capital Market National Debt Management (ICM) with the objective of creating a benchmark Framework (NDMF). The NDMF for other bond issuers was based on the Government s 7-point Economic Reform Agenda and Vision

3 DEVELOPMENT OF DOMESTIC BOND MARKET {1} 1. Restructuring short tenured instruments to long tenured instruments: End 2002 NTBs/FGN Bonds constituted 62.93%/0% and by end 2009 it was 24%/61.2%. SOVEREIGN BOND MARKET A. 3 Transformation of the Domestic Debt Stock by Instruments- Dec. 31, 2002 Compared to Dec. 31, INSTRUMENTS AMOUNT (N BILLION) % AMOUN T (N BILLION) NTBs PROMISSORY NOTES % FGN BONDS NIL NIL 1, TREASURY BONDS A. SOVEREIGN BOND MARKET A. 1: PROGRESSION OF TENOR ELONGATION Testing Phase Smoothening Phase* TENOR YEAR - Regular Monthly Issuance Phase 3-YEAR - 5-YEAR - 7-YEAR - DEVELOPMEN T STOCKS YEAR - TOTAL 1, , YEAR - 3

4 DEVELOPMENT OF DOMESTIC BOND MARKET {2} 2. Diversification of investor base: In 2002, CBN held 45.7% and Non-bank public held 14.8% and by the end of 2009, CBN share reduced to 10% and the share of Non-bank public including PFA increased to 41.7%. SOVEREIGN BOND MARKET Transformation of the Domestic Debt Stock Outstanding by Holder Type - Dec. 31, 2002 Compared to Dec. 31, HOLDER AMOUNT OUTSTANDING % AMOUNT OUTSTANDING % CENRAL BANK BANKS AND DISCOUNT , HOUSES NON-BANK PUBLIC , SINKING FUNDS NIL NIL TOTAL 1, ,

5 DEVELOPMENT OF DOMESTIC BOND MARKET {3} 3. Introduction of new instruments: Introduction of 20 year FGN in 3 rd Quarter of 2008 and Promissory Notes in November, Empanelling of PDMM system: Debut 2007, 21 PDMMs by end Development of reliable domestic debt data: Use of CS-DRMS software to record debt data 6. Support for the development of sub-national and corporate bonds 6. Growth in volume of bond issuances 5

6 Domestic Debt Growth Trends ( ) and Holdings as at 2009 Domestic Debt By Instruments Year FGN Bonds NTBs Treasury Bonds Development Stocks Promissory Notes Total , , , , , , , , , DOMESTIC DEBT STOCK BY HOLDINGS, 2009 INVESTOR 2009 Central Bank Banks and Discount Houses Non-Bank Public Parastatals 0.00 Brokers 0.00 Special Fund TOTAL 3,

7 FGN Bond Primary Market Issuance and Secondary Market Activities: Primary Market FGN Bonds Issuance Offer/Issue Subscription Allotment , , , , , , , , , , ,167, , , , , , ,340, , FGN Bonds Secondary Market Activities Year Number of Deals/Transactions Volume (Units) Face Value (N' B) , ,410, Domestic Debt Issuance by Tenor, 2009 Tenor Amount % 3-Year 260, Year 190, Year 30, Year 214, Total 694, , ,947,284,982 3, , ,090,235,806 10, , ,789,262 16,