{"id":3920,"date":"2013-05-20T01:26:50","date_gmt":"2013-05-20T01:26:50","guid":{"rendered":"http:\/\/disnaija.com\/nigerian-newspapers\/world-bank-supports-states-borrowing\/"},"modified":"2013-05-20T01:26:50","modified_gmt":"2013-05-20T01:26:50","slug":"world-bank-supports-states-borrowing","status":"publish","type":"post","link":"https:\/\/disnaija.com\/world-bank-supports-states-borrowing\/","title":{"rendered":"World Bank supports states\u2019 borrowing"},"content":{"rendered":"
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The World Bank is not opposed to states\u2019 inde pendence to borrow since Nigeria operates fiscal federalism, the body\u2019s Lead Economist, Nigeria Country Office, John Litwack, has said.<\/p>\n

He said: \u201cIt is good to give states independence in terms of borrowing,\u201d adding, however, that state independence on borrowing is a \u201ccomplicated matter.\u201d<\/p>\n

Litwack told The Nation that he was satisfied with the way Nigeria was handling its debt matters, and that \u201cit\u2019s a positive development that issues of subnational debts are becoming clearer since the Debt Management Office (DMO) started monitoring\u201d the nation\u2019s debts.<\/p>\n

Litwack advised those involved in managing debt issues in the country to keep track of \u201ccontingent liabilities\u201d which have the potential of impacting on the resources of state governments.<\/p>\n

He cited Lagos State which is planning to build the Blue Line under which agreement the company handling the project has been given guarantee on returns. While the idea of the Blue Line is good, he cautioned the government to ensure adequate provision for \u201ccontingent liabilities\u201d for the project.<\/p>\n

However, an official of a Non-Governmental Organisations (NGO), who asked not to be identied, said at an event organised by the Centre for Social Justice, that though he was in support of states independence, he was also in support of a single economy for the country.<\/p>\n

He argued that if a state misbehaves after borrowing, it could influence other states to act in the same manner, and that it is the fear of such a scenario that the World Bank is supporting the Federal Government in coordinating debts for both federal and state governments.<\/p>\n

The World Bank in its first edition of the Nigeria Economic Report had stated that \u201crules for subnational borrowing are more restrictive than might be expected in such a decentralised federation.\u201d<\/p>\n

The report declared that the DMO \u201cappears to have more control over state bond issues than other types of commercial borrowing, and it is not clear what kind of sanctions would apply to states that exceed their prescribed debt ceilings.\u201d<\/p>\n

In Nigeria, states can only borrow externally with the permission of the Federal Government and to service these external debts, deductions would be made from the state\u2019s share of the federation account revenue before distribution.<\/p>\n

\u201cDebt servicing by Nigerian states are not to exceed 40 per cent of their average monthly allocation from the Federation Account,\u201d the World Bank report said.<\/p>\n

On what the sanction(s) would be for a state that exceeds its debt ceiling, the Director-General of the DMO, Dr. Abraham Nwankwo, said: \u201cNo state would want to exceed its limit.\u201d<\/p>\n

Nwankwo said there was an urgent need to reassess the structure of the nation\u2019s debt because the interest rate payable on domestic debt was too high, adding that the ratio of the Federal Government\u2019s domestic debt stands at 88 per cent, while the ratio of the foreign debt stands at 12 per cent.<\/p>\n

He said the appropriate ratio should be 60 per cent for domestic debt and 40 per cent for foreign debt.<\/p>\n

The ratio of domestic and external debt stock as at end 2011 was 88:12, whereas the appropriate ratio would be 60:40.\u201d<\/p>\n

He said at present the difference between the domestic and external average cost of borrowing is about eight per cent per annum.<\/p>\n

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Posted in Nigerian Newspapers. <\/a>A DisNaija.Com<\/a> network.<\/p>\n

Source: The Nation Newspaper<\/p>\n

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