Reasons for Public Debt Management in Nigeria Since Independence
This paper examines the reasons for public debt management in Nigeria fiscal system and equally emphasized on the role in which the management of debt has played which has benefited Nigeria economy. In addition sound debt management has enhanced the government’s credibility and has contributed markedly to enhancing Nigeria’s credit worthiness. It equally looked at the factors which contributed in no small way for the success of public debt management in Nigeria which has being the engine driving force that has help management of debt in Nigeria economy and government some of these factors or drivers of the success include power pressure, passionate leadership and professionalism etc.
The definition and the actual meaning will also be treated accordingly.
MEANING OF PUBLIC DEBT
Public debt which is also sometimes referred to as government debt is all of the money owed at a given time by any branch of the government. It encompasses debt owed by the federal government, the state government, and even the municipal and local government. It is, in effect, an extension of personal debt, since individuals make up the revenue stream of the government. Public debt accrues over time when the government spend more money than it collects in taxation. As a government engages in more deficit spending, the amount of debt increases.
Many different types of debt make up public debt. A great deal of it is external debt, which is money that is owed by the government to foreign lenders, either in the form of international organizations other government or groups like sovereign wealth funds, which invest in government bonds. Government debt is also made up of internal debt, where citizens and groups within the country lend the government money to continue operating. In some ways, this is a lot like lending to oneself since ultimately the responsibility for all falls back on the very people lending money.
Governments with strong economics who are well trusted in the world are able to raise funds by issuing their onw securities, usually called government bonds. Individuals other nations and group buy these bonds, and the government promises to pay them back at a certain, usually fairly good, interest rate, less robust governments, who do not have the trust from the world to be able to issue bonds and expect people to buy them, may turn to international institutions or even normal banks, to give them loans usually at less favorable rates.
Some people use term public debt to refer not only to money directly owed in the form of securities that can be collected on by a government but also on the pool of money owed in the form of services and payment promised. For example, pension payments the government may owe to its employees or contracts the government has entered into but has not yet paid, may also be included in some calculation.
This type of debt is usually broken down not only by an internal and external divide, but also by the length of the loan mate. Short-term public debt is foreseen to last only me or two years, so the turnover rate is fairly high. Long- term debt is designed to last more than ten years, with some lasting considerably longer than that mid term debt last anywhere between three and ten years.
As with all debt, public debt is sometimes defaulted on, and this can get very complicated. Supranational organizations, most notably the international monetary funds have a great deal of power granted them by the international community to ensure nations don’t default and to take control over a number of financial issues if it looks like they will. On lords lower than the national level, this debt is usually guaranteed by the nation, the local or regional government a part of so if a state or municipality were to default on its debt, that cost usually then be absorbed by the country itself. In 1960s for example the city of New York want affectively bankrupt and both New York State and the federal government of the United States were required to help bill it out.
Having known the meaning and types of public debt with the manner in which it is been operated it will be petinent have to look at the farm work which regulate coordinate and foresees the affairs of a country public debt known as public debt management system with Nigeria as a case of emphasis.
The term debt management refers to the formulation and implementation of a debt policy designed to achieve certain objectives. According to the traditional philosophy, debt management consisted of keeping its interest cost to the minimum possible and paying it off as early as possible. However, a modern welfare state uses debt management as a policy tool for achieving various socio-economic objectives.
In Nigeria it has remained a major responsibility of the CBN for decades resulting in their setting up of a department in the bank to undertake the function of managing federal government debts trying to minimize and keep the debt how are some of those function or reason why public debt management office was created of course, every government is still interested in keeping the interest cost to the minimum possible but if this objective come into conflict with other objective it is sacrificed.
Debt management policy has to run in harmony with the monetary management of the country. They both influence stabilization and economic growth.
Functions of debt management
Policy: The management of debt departments in Nigeria are responsible for drafting out policies in which Nigeria government are to consider in borrowing or toward debt acquisition. Policies are the rules which are drafted out by an organization or any entity that abide every transaction concerning the organization. So therefore debt management offices are there to provides platform for debt acquisition in Nigeria.
- Accounting: This is also another major function of debt management, the debt management, the debt management required to called detailed information on debt on a loan by loan basis and providing for an efficient payment mechanism.
3 Regulating: The regulatory aspect of debt management concerns the establishment of a well defined institutional arrangement for recording and monitoring all external debt. Monitoring new debt incurred by domestic agents (public to private) and the comprehensive recording of maturing debt.
- Operation: The debt management department in Nigeria presupposed the adoption of a strategy to approach and participate in the international financial market.
- Analytical: The analytical aspect however sees that debt management involves the development of the statistical tool to carry out sensitivity analysis to explore the options open to debt manager. Given market conditions and the future structure of external debts (Ogba 1999).
Rational for public debt management rational for public debt management in Nigeria are those reason behind the establishment of an office empowered to perform concerning managing debts and related issues of the economic and in other to foster and improve the our economy and those reason are as follows with critical explanation.
- To make a maximum contribution to public welfare by seeing that debt exerts minimum negative effects.
- To contribute to price stability
- To serve as an instrument of economic control
- To use to raise national income
- To use in achieving equality in national income distribution.
- To maintain a relatively low interest in order to hold down the tax burden and to avoid any suspicious of a subsidy to bondholders who as a class.
- To maintain the debt as per value in order to facilitate floatation of a new issues.
- To space maturities so as to assist in stabilizing the market.
- To tailor the type and maturities of the government objections to the requirement of the various issues of savers who prefer to invest in government debt.
- To make a maximum contribution to public welfare by seeing that debt exerts minimum negative: Government established department for managing public debt in the fiscal system with the view that the management debt department will foresee and make sure that government debt to not affect the country economy must in the negative aspect in other to foster development.
- To contribute to price stability: Excessive debt brings about an unconducive economy which stimulate inflation and price of goods and services increases in quantum, so government established debt management for than to make sure that debt which the government owed to foreign body that does not increase the price of goods and services and when it does it will not be unstable.
- To serve as an instrument of economic control: Debt management department foresees and make sure that Nigeria economy is well contributed by drafting out an institutional arrangement for recording and maintaining all external debts so therefore government instituting debt management is a good and a better well could development.
- To use and raise national income: Debt management are solely responsible in making sure that debt incurred by the government or federal government as form of its participation with extern body do not diminished the national income of the country.
In summing the above listed rationale for justifying government establishing debt management in Nigeria fiscal system we can deduce that debt is unavoidable by any individual, government or any entity as they engage in business transaction. But the important thing is the ability of a state or country to map out plan which will maintain the debt to limit the chances of the debt incurred affecting the country’s economy and to maintain the debt as per value in order to hold down the tax burden and to avoid any suspicious of a subsidy to bondholder.
Furthermore, investment see the important of debt as it helps in generating revenue to be used for infrastructural development of the country and are also aware that when much debt are required the economy will be at a very big risk of negativity so debt management came in to make sure that such negative effect never occurred or it will be at minimal.
Economy involves finance and no economy is the world is sufficient enough not to engage in business with other country and as they embark on these business which will profit of economy general they incur debt to foster their plans. But for the fact that debt can have negative impact on the economy the need for a department which will foresees the running of debt emerge to tackle all those issue which has been listed above.
Therefore for the seek of these paper government reason for controlling debt through debt management is justifiable.