Borrowing In Defiance Of The Law.

Laws and policies are enacted as a means to an end. They are made to protect higher societal goals and in most instances, they are enacted to enhance human welfare within the construct of the social contract. The Fiscal Responsibility Act and its policies were made to increase transparency and accountability in fiscal governance, integrate policies, planning and the budgeting process to achieve maximum economic growth and development. The FRA as a means to an end seeks to manage prudently the fiscal risks facing the state, reduce debts to sustainable levels, maintain macroeconomic stability, predictability and achieve levels of state net worth to provide buffers against adverse future events. It also seeks to guarantee the implementation of high level government policies in a way and manner that realises their goals.

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Commentators on the recent controversy about the sustainability of the national debt have made comments as if there is no law and policy governing debt procurement and management. This discourse shall examine debt procurement from the prism of the provisions of the FRA. According to Section 41 (1) (a) and (b) of the FRA: “(a) 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 reasonable long amortisation period subject to the approval of the appropriate legislative body where necessary and: (b) 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.” The Act authorises borrowing only for the purpose of capital expenditure and human development. The term, capital expenditure, is clear enough especially from the budgetary classification of recurrent and capital expenditure. Human development, on the other hand, seems a bit unclear and may encompass non-capital expenditures to improve the human condition.

The above provision on human development looks like a blank cheque to borrow since the borrowing government can always lay claim that it is borrowing to improve the human condition. But Section 44 of the FRA provides more clarity and comes to the rescue when it states that 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. It further requires the borrowing to be based on the prior approval of the appropriate legislative body and the proceeds of such borrowing shall solely be applied towards long term capital expenditure. A conjunctive reading of sections 41 and 44 of the FRA shows the intention of the legislature to tie borrowing to meaningful capital projects to improve lives and livelihoods as distinct from the immediate gratification of borrowing for consumption. Thus, it is not permissible within the FRA to borrow to pay salaries and routine overheads.

It is clear from the statements attributed to the outgone Minister of Finance, Dr. Ngozi Okonjo-Iweala, that the Federal Government was borrowing to pay salaries and to fund recurrent expenditure in contravention of the FRA. The Debt Management Office’s Annual report 2013 at page 26 stated that it was important to note that the upward trajectory in the domestic debt stock was due to the rise in government’s expenditure occasioned by consistent increase in overheads and other recurrent expenditures, which have necessitated an increase in the proportion of the fiscal deficit funded through domestic borrowing. The Federal Government has always maintained that the alternative to not borrowing will be to trim the workforce. This may not exactly be true as there are other unnecessary governance costs that can be trimmed to save money.

The FRA also approves borrowing that is “on concessional terms with low interest rate and with a reasonable long amortisation period.” And it defines low interest rate to be one that is less than three per cent per annum. However, all the domestic debts have come at double digit interest rates in contravention of the FRA. Domestic debt as of end of March 2015 is about $54bn of the overall $63bn debt portfolio. As of 2013, 43.55 per cent of domestic debts had a maturity period of less than one year; 11.28 per cent had a maturity period of between one and three years whilst only 45.17 per cent had a maturity period of more than three years. Although the DMO has been working to ensure a better balance in the composition of domestic debts, this scenario does not portray debt sustainability. If the rules were followed and borrowing is channelled to long term capital expenditure, this will clearly produce a mismatch between the funded projects and the source of funding.

Strikingly, the Federal Government has never prepared any cost-benefit analysis justifying any of its borrowing demands. Alternatively, if any cost-benefit analysis had been prepared, it was never put in the public domain. This is in contravention of Section 50 of the FRA which demands that government shall ensure that its fiscal and financial affairs are conducted in a transparent manner and accordingly ensure full and timely disclosure and wide publication of all transactions and decisions involving public revenues and expenditures and their implications for its finances. The public were denied the opportunity of contributing and interrogating borrowing decisions.

By Section 42 of the FRA, the President shall within 90 days from the commencement of the Act and with advice from the Minister of Finance, subject to the approval of the National Assembly, set overall limit for the amounts of consolidated debts of the federal, state and local governments pursuant to items 7 and 50 of Part 1 to the Second Schedule of the Constitution. Again, the outgone President ignored this provision and no such limitation was set by law. Pray, how many 90 days have elapsed since the commencement of the FRA on July 30 2007? Again, by Section 45 of the FRA, banks and financial institutions are under obligation to request and obtain proof of compliance with the FRA before lending to any Government in the Federation. Lending by banks and financial institutions in contravention of the FRA is declared unlawful.

If all these beautiful provisions of the law were obeyed in the breach and blatantly violated, we are rather lucky that the debts have not reached $100bn. The questions are legion; why enact a law no one is ready to obey? Who stands to lose if the law is enforced? Why should public officials disobey the law and expect positive results? Can the DMO or any government agency tie up to 50 per cent of the $63bn debt to actual capital projects? Why are we borrowing in defiance of the law? For President Muhammadu Buhari, if you want our debts to be sustainable, the law should be your guide. Cost your project proposals and isolate the ones to be funded by borrowing and package them with a cost-benefit analysis framework. Put them in the public domain for discussions before legislative approval. Stop borrowing to fund recurrent expenditure. Cut down the cost of governance and only restructure the workforce as a last resort. Let us learn to live within our means and this excludes borrowing to pay salaries.

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