By Eze Onyekpere
According to the Debt Management Office, Nigeria’s total public debt portfolio as of June 30, 2023, stood at N87.479trillion which in United States dollar terms amounts to $113.4billion. This includes federal and subnational government local and foreign debts. The great challenge arising out of this humungous figure is the sustainability of the debt in terms of our ability to service and repay the debt while discharging our other obligations. At the federal level, the scenario is one of servicing debts with the entire retained revenue meaning that the entire personnel, overheads, statutory transfers as well as capital expenditure for the year 2022 were from borrowed funds. At the state level, many states are servicing debts with more than 60 per cent of their retained revenue consisting of internally generated revenue and federation account allocations.
This discourse reviews the legal provisions on borrowing in the Fiscal Responsibility Act and how they have been subverted by governments at all tiers. It is pertinent to recall that former President Olusegun Obasanjo’s administration placed Nigeria at the most sustainable level by paying off Nigeria’s foreign debts and stabilising local debts. The administration was also responsible for the enactment of the FRA. At the end of the Obasanjo administration, he left not less than $70bn between the reserves and excess crude account. Thereafter, succeeding administrations started borrowing for projects that were not viable and contributed nothing to national development; culminating in the borrowing binge of the former President Muhammadu Buhari administration. The Obasanjo government did not experience high crude oil prices.
The postulation of the DMO stating Nigeria’s debts at N87.479tn is deliberately misleading. The DMO and every reasonable Nigerian who has read the FRA understand that definition of debt and borrowing as provided in the interpretative section of the FRA. “Borrowing” has been defined in the interpretative section of the FRA to mean any financial obligation arising from – any loan including principal, interest, fees and penalties related to such loan; the deferred payment for property, goods and services; bonds, debentures, notes or similar instruments; letters of credit and reimbursement obligations with respect thereto; trade or banker’s acceptances; capitalised amount of pecuniary obligations under leases entered into primarily as a method of raising finances or of financing the acquisition of the asset leased; agreements providing for swaps, ceiling rates, ceiling and floor rates, contingent participation or other hedging mechanisms with respect to the payment of interest or the convertibility of currency and a conditional sale agreement, capital lease or other title retention agreement.
From the above definition and DMO’s practice, the debt figures do not include most of the other defined terms apart from direct sovereign and commercial debts. Contractor arrears and other deferred payments for property, goods and services including the billions the Central Bank of Nigeria is owing businesses, vendors and service providers such as airlines and dividends that cannot be repatriated out of the country, have not been included. Neither did it quantify crystallising contingent liabilities that are due. In essence, when these other debt figures at the federal, state and local government levels, are computed, Nigeria may be owing double the N87.479tn stated by the DMO.
By S.41 of the FRA, the framework for debt management is based on the following rules. The first is that the government at all tiers shall only borrow for capital expenditure and human development, provided that such borrowing shall be on concessional terms with low interest rate and with a reasonably long amortisation period subject to the approval of the appropriate legislative body where necessary. This provision was later amended in one of the Finance Acts to include the nebulous term, “national interest” as one of the grounds and justification for borrowing. The second is that the government shall ensure that the level of public debt as a proportion of national income is held at a sustainable level as prescribed by the National Assembly from time to time on the advice of the minister.
It is clear that using the entire retained revenue to service debts while borrowing for the entire yearly expenditure cannot by any stretch of the imagination be described as sustainable. It is also clear that borrowing to pay salaries and overheads cannot be borrowing for capital expenditure or human development. These are clearly in violation of the law. The idea of borrowing on concessional terms with low interest rate has also been severely violated. This is defined in the interpretative section of the FRA to mean that the terms of the loan must be at an interest rate not exceeding three per cent. From available information, with the exception of facilities from international development agencies like the World Bank which do not stricto sensu have interest rates but service charges, no Nigerian bank loan, bond or any other facility can come at three per cent interest rate. Essentially, this provision bars the governments from borrowing from Nigerian banks.
Furthermore, by S.44 of the FRA, any government in the federation or its agencies and corporations desirous of borrowing shall specify the purpose for which the borrowing is intended and present a cost-benefit analysis, detailing the economic and social benefits of the purpose to which the intended borrowing is to be applied. The borrowing shall comply with the following conditions-(a) the existence of prior authorisation in the Appropriation or other Act or Law for the purpose for which the borrowing is to be utilised; and the proceeds of such borrowing shall solely be applied towards long-term capital expenditures. However, the borrowing shall not be in excess of the limits set out in section 42 of this Act. Also, S.44 empowers the Fiscal Responsibility Commission to verify on a quarterly basis, compliance with the limits and conditions for borrowing by each government in the federation. It mandates the DMO to maintain a comprehensive, reliable and current electronic database of internal and external public debts, guaranteeing public access to the information.
Specificity of purpose is a requirement for borrowing as detailed above. But this is also severely violated by the bonds and papers floated by the DMO which are not tied to any purpose but tied to the bottomless pit from where money is spent not in accordance with the rules. Also, borrowing is to be backed by a cost-benefit analysis. A cost-benefit analysis is defined in the interpretative section to mean a detailed and comprehensive analysis and comparison of the cost of the project or programme with benefits that Nigerians will likely derive from the project or programme. Costs and benefits here transcend financial calculations but will include issues related to human development indicators such as education, health, access to water, environment, gender, disability, and vulnerability challenges, etc. But who has seen the cost-benefit analysis of any project funded by the federal or state governments? None is available for the review of Nigerians.
Where is the comprehensive, reliable and current electronic database of internal and external public debts that should be available to Nigerians? Merely having the aggregate federal and state government debts on a portal cannot be the same as a comprehensive database. A comprehensive database should include detailed information about each debt vis, date procured, amount, purpose, utilisation and activities so far, whether due process was followed in its procurement and the documents evidencing this due process, results achieved, etc.
To be concluded
Eze Onyekpere is the Executive Director, Centre for Social Justice