One of the issues that instigates negative reactions to debt relief is the fear that government may not deliver on promises to channel savings to the target sectors for the realization of dividends. References are made of illegal capital flight by past political leaderships and the mismanagement of previous oil revenue windfalls. Without prejudice to the basic foundations that inform this opinion – the long years of mismanagement of both borrowed and domestic sourced funds by past governments, which had created pessimism among citizens - one can not ignore the present administration's commitment to probity and accountability in public finances.

Government Reform Agenda

In the past two years , the Federal Government has made impressive progress in improving public expenditure management. As part of the economic reform programme and plans to increase government's transparency and accountability in the use of public resources, a number of measures have already been put in place including a Due Process mechanism for transparent and consultative budget process, the SERVICOM Charter , which outlines performance matrices for ministries and government services and improved Access to Information by the publication of Federal allocations to all tiers of government.

The Fiscal Responsibility Draft Bill is already with the National Assembly and a big push is being made to enact this and other related legislation. An Economic Reform and Governance Project has been agreed with the World Bank, through which the government is investing $56m over five years in reforms to the federal government's budget, financial management and procurement policies and processes. T hese reforms demonstrate the government's commitment to reform, responsibility and ultimately poverty reduction.

The Oversight of Poverty Expenditure on NEEDS (OPEN)

Even prior to securing the Paris Club commitment for debt relief, the government had established a framework for a Virtual Poverty Fund, now formally called the Oversight for Poverty Expenditure on NEEDS (OPEN), for tracking debt service savings as well as instituting a programme of substantial reforms of budget systems at the federal and state levels. The fund is a mechanism for enhanced funding, tracking and monitoring of budget lines in key sectors aimed at meeting the MDGs and reducing poverty. OPEN will potentially monitor the use to which the savings on debt servicing following debt relief will be put, as well as any future increase in ODA inflows. $1 billion addition funding from debt relief savings will be allocated to identified budget lines. This is real money that will directly impact the populace.

OPEN promises not only additional funding, but also improved impact and effectiveness of public expenditure. Once key poverty-reducing budget lines have been chosen, funding can be fast-tracked to these in collaboration with the budget process.

OPEN has the potential of enhancing MDG attainment in Nigeria in a number of ways: by ensuring greater resources are channelled to budget lines that directly impact the achievement of the MDGs; by improving coordination among the tiers of governments in policy formulation and service delivery for; by strengthening transparency and accountability in management of public expenditure; by tracking expenditure flows, outcomes and impact of the spending; and by setting clear criteria for states to benefit from the additional aid.

Although all the MDG goals are important, the current OPEN proposal emphasizes the need to sequence and prioritize a few key sectors to begin with, then expand coverage over time. Specifically, key MDGs that are to be included in the preliminary stages include education, health, water, road networks, power and agriculture. Within each sector, key programs can be identified, for example Education (Universal Primary Education, Girls' Education Program), Health (immunization, roll back malaria, bed nets, training of community health workers), Water (rural water), and infrastructure (specifically power, rural roads, road maintenance). It will be important to ensure quick wins and early results among these sectors to gain support for and demonstrate the success of the fund, whilst laying the foundation for longer term results and expansion to other sectors.

Implementing OPEN at the State Level

Only states who meet agreed clear criteria can benefit. These criteria could include among other things signing on to and implementing the Fiscal Responsibility Bill; one or two indicators of transparency and accountability and good governance; and one or two sector-specific indicators. In addition, benefits to the VPF can be made conditional on a readiness to undertake an initial Public Expenditure Management assessment and agree to a programme for strengthening these systems, as well as a readiness to put in place/be subject to a tracking and performance monitoring mechanism for SEEDS.  

Monitoring OPEN

To ensure sufficient capacity for the necessary monitoring and transparency arrangements, a specific share of funds could be set aside for capacity building in accountability at the state level, and in support of EFCC and the justice system. A Monitoring Committee on the MDGs, chaired by President, will review quarterly VPF expenditures and outcomes, which are published to ensure transparency, review reports of regular VPF expenditure tracking surveys, and prepare and disseminate annual report on VPF activities

Having come this far, debt management in the post-relief period must be concerned with the avoiding a relapse into another crisis.

In order to avoid undue build-up of external debt, which could exacerbate Nigeria 's debt servicing problem the DMO formulated Guidelines on External Borrowing for fiscal year 2003 up to 2005 subject to modifications that might be justified by new developments during the period. The Guidelines set out the broad parameters for borrowing by the Federal and State Governments, as well as their agencies and specify the terms and purposes for which borrowing could be contracted. It also outlines the general criteria for approval of these borrowings, as well as servicing arrangements, among other things. Some of the criteria are as follows:

•  Federal Government agencies, State Governments and their Parastatals wishing to obtain external loans must obtain Federal Government approval-in-principle, prior to full scale negotiations for such loans;

•  To receive approval-in-principle, the applicant governments or agencies must provide evidence that they have not over-borrowed internally and externally. In this regard, debt service ratio should not exceed 40% of their Federation Account allocation. During the period, eligible projects will be assessed on the basis of cost-benefit analysis and the required borrowing by the State and Federal Governments as well as their agencies should be limited to highly concessional sources only;

•  Borrowing costs for concessional funds should not exceed one percent per annum, while the moratorium period for the principal repayment should not be less than 10 years;

•  Only projects in the social services and infrastructure sector, or those with direct impact on poverty reduction, will be accommodated in the borrowing programme during the period, 2003 – 2005;

•  Any borrowing for commercially viable economic activity should be left to the private sector to undertake. Where it is compelling and feasible that government should engage in such activities, the Federal and State governments and their agencies could source money from the internal domestic market to finance such projects, to the extent that this could be effected without crowding out private sector investment, or increasing the cost of borrowing from the capital market; and

•  Where a commercially-oriented project with self-repaying capacity must be undertaken by any government or any government agency, (perhaps because such a project also has compelling public interest rationale), and where such a project requires external loan, other funding and project development options which do not commit the Federal Government in terms of guarantee or counterpart funding should be pursued. One such option would be the "Build, Operate, Recover and Transfer" arrangement; another would be to concede to the external financier, a lien on the products and other assets of the project under a hands-on management which would subsist until the external loan is fully recovered from the profits of such a project. The acceptance of these options by the project promoters and the external financier/technical partner, would serve as an implicit test of the level of confidence to be attached to the claim of the two parties (promoter and financier/technical partner) that the project is commercially viable.

Overall, the guidelines seek to ensure that maximum benefits are derived from external borrowing in bridging medium-term resource gap as well as financing long-term capital formation with a view to fostering economic growth, poverty reduction and sustainable development.

In the drive to avoid a relapse to pre-debt relief era, the DMO has also completed a number of measures to complement government's broad reform agenda. These include debt reconciliation with creditors, which resulted in the rejection on spurious debts and realization of substantial savings; the establishment of a comprehensive and reliable database; desegregation and reconciliation of external debt of states; timely provision of debt information to stakeholders; and the review and implementation of a more efficient external debt service payment procedure.

The DMO is currently putting in place mechanisms that ensure the coordination of broad fiscal and monetary policies with debt management. It is expected that the above measures in conjunction with the broad reform programme of the government will help to forestall a relapse to debt crisis.