joseph o sanusi : management of nigeria ’ s domestic debt keynote address by dr joseph o sanusi, governor of the central bank of nigeria, at the 7th monetary policy forum organised by the central bank of nigeria at the cbn conference hall, abuja, 22 may 2003. * * * distinguished senators, honourable members of the house of representatives, distinguished invited guests, ladies and gentlemen, it is my honour and privilege to welcome you to the 7th edition of the cbn monetary policy forum. the theme of today ’ s forum “ management of nigeria ’ s domestic debt ” has been chosen in view of the increasing concern over the rapid growth of nigeria ’ s public debt and its implications for economic stability. an escalating debt profile presents serious obstacles to a nation ’ s path to economic growth and development. the cost of servicing public debt ( domestic and external ) may expand beyond the capacity of the economy to cope, thereby impacting negatively on the ability to achieve the desired fiscal and monetary policy objectives. furthermore, a rising debt burden may constrain the ability of government to undertake more productive investment programmes in infrastructure, education and public health. to avoid such a situation, it is imperative that the quantum and structure of the nation ’ s debt be carefully managed in a manner that is consistent with the country ’ s growth and development aspirations. to appreciate the dimension of nigeria ’ s domestic debt burden, it would be pertinent to undertake a brief review of its development. first, nigeria ’ s domestic debt stock stood at n23. 5 million or 1. 0 per cent of gdp in 1960 and subsequently, increased rapidly to n8, 231. 5 million or 16. 2 per cent of gdp in 1980, reaching n1, 160. 0 billion or 83. 6 per cent of gdp as at end - december, 2002. the sharp increase in domestic debt stock, over the years, was attributable largely to the failure to embark on necessary adjustment, particularly at the time of declining revenue, that resulted in growing fiscal deficits and further domestic debt accumulation. secondly, the bulk of the debt has been in short - term treasury securities with maturities of less than one year. thirdly, the banking system, mainly the cbn remains the dominant holder of federal government securities. ladies and gentlemen, it bears repeating that one major problem that has hindered the attainment of macroeconomic stability and sustainable growth has been the excessive reliance by the federal government on borrowing from the banking system,

of the debt management office should therefore be seen as a positive development that will enhance the efficiency of not only domestic debt management but also the effectiveness of monetary policy. indeed, in spite of the bank ’ s best endeavours in the prudent management of government ’ s domestic debt, not much has been achieved by way of rationalizing public expenditure and trimming the size of domestic public debt stock. some of the outstanding problems that call for urgent solutions include : · how to ensure that borrowed resources are productively utilised, such that economic and social rate of return is higher than the future servicing cost. · the restructuring of the existing public debt in favour of long - term in a way to compel better quality evaluation of the loans. · how the capital market can play an increasing role in the funding of the federal government fiscal operations. · the problem of intergenerational equity argument arising from debt over - hang. · how to reduce cbn funding of government and bring it in line with the government ’ s obligation under the west african monetary zone protocol. acceptable progress has, however, been made in this regard during the last two years. against this background, this forum has been organised to proffer practical solutions on how to tackle the problem of the burgeoning domestic debt of the federal government. participants are therefore challenged to come up with a credible framework that would prepare the road map, which will guide the nigerian government in resolving this problem. to this end, ladies and gentlemen, we have assembled today scholars, seasoned professionals and other key stakeholders in the economy to lead the discussions. i therefore urge all the participants at this forum to discuss freely and frankly in order to come up with useful ideas that will crystallize into an enduring solution to the country ’ s debt problem. once more, i welcome you to this forum and wish you fruitful deliberations.