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,

first force, decelerated after reaching a peak in the middle of last year, and the rate of change has been negative since around spring this year. in addition, the rate of increase in producer prices has clearly slowed since the beginning of the year, and the year - on - year rates of increase in prices of items such as food and daily necessities at supermarkets and other retail stores have started to decelerate recently ( chart 6 ). taking these points into account, the effects of the first force pushing up prices are likely to gradually wane, even if a rise in crude oil prices, for example, causes that process to take time. based on this thinking, the bank projects that the year - on - year rate of increase in the cpi for all items excluding fresh food for fiscal 2025 will be lower than that for the period through fiscal 2024. the second force and sustainable and stable achievement of the price stability target that said, the projected year - on - year rate of increase in the cpi for fiscal 2025 is at 1. 7 percent for all items excluding fresh food and at 1. 9 percent for all items excluding energy in addition to fresh food. the bank projects that, even after the first force diminishes, the inflation rate will not return to the range of 0. 0 - 1. 0 percent, which was the pre - pandemic level. this is because the bank expects that underlying cpi inflation will increase gradually toward 2 percent as the second force pushing up prices - - namely, the virtuous cycle between wages and prices - - strengthens. the bank has been aiming to achieve the price stability target of 2 percent in a sustainable and stable manner, accompanied by wage increases, as the second force strengthens. recently, some aspects of firms'behavior have begun to shift more toward raising wages and prices. on the wage side, the wage growth rate agreed in this year's annual spring labor - management wage negotiations marked the highest level in 30 years, partly on the back of price rises. as for price setting, some firms in industries where personnel expenses account for a large proportion of costs have reported that they have raised prices in anticipation of a continued increase in personnel expenses. looking at the tankan, figures for firms'outlook for output prices for one year ahead have declined because raw material costs have settled down, while those for five years ahead have increased somewhat, particularly for the nonmanufacturing industry. this suggests that