In the second and concluding part of this discourse, it is pertinent to set out parametres and issues that the National Assembly ought to take into consideration in approving or rejecting a presidential borrowing request. These issues will activate the framework of laws and policies on borrowing and debt management so that practice will be in tandem with established rules.
The first issue is that the present face-off between the executive and the legislature provides the opportunity for a proper dialogue leading to a methodological approach to procuring debts and budgeting for their repayment. The Fiscal Responsibility Act is very clear in its Section 42 when it provides that the President shall, within 90 days from the commencement of this Act and with advice from Minister of Finance subject to approval of the National Assembly, set overall limits for the amounts of consolidated debt of the federal, state and local governments pursuant to the provisions of items 7 and 50 of Part I of the Second Schedule to the constitution and the limits and conditions approved by the National Assembly, shall be consistent with the rules set in this Act and with the fiscal policy objectives in the Medium-Term Fiscal Framework.It is clear that 90 days has passed since the commencement of the Act in 2007 and the executive and legislative authorities have failed, refused and neglected to take action to activate this section. Its activation would have facilitated the establishment of the contours and parametres for borrowing and to what extent debts can be procured. Thus, the lawmakers should insist on having this consolidated debt limits set and approved.
The second is that the National Assembly must ensure that the overall sums requested in the borrowing framework do not surpass the capital projections in the MTEF 2017-2019. Yes, the borrowing plan may have been for the period 2016-2018 as against the new MTEF’s period of 2017-2019, but the sums appropriated for 2016 and the debt projections for 2017 and 2018 must be consistent with the fiscal objectives of the MTEF in accordance with Section 42 of the FRA. There must be consistency between the multi-year budget plan and the borrowing plan.
The third is that the FRA stipulates that borrowing shall be for capital expenditure and human development. It is very easy to understand capital expenditure but the concept of human development is nebulous and may not lend itself easily to definite interpretation because virtually all human activities can be loosely tied to human development. When the FRA specifically permits the funding of capital expenditure through borrowing in contradistinction to recurrent expenditure, the implication is that the National Assembly should weed out all proposals to borrow for recurrent expenditure. Thus, borrowed money should not be used for salaries and overheads as it is not sustainable and makes no sense.
The fourth which follows from the third is that human development should not be an excuse for Nigeria to borrow to fund such activities as routine immunisation of her children. It is irresponsible of anyone and any nation to bring into the world children it cannot house, feed, educate and take care of their basic medication. Maternal, new born and child health and similar issues are part of the minimum core obligations of the state and any state that fails to take care of these basic things is a failed one. Nigeria has not yet failed unless the leaders want to proclaim so. Thus, the country should be able to fund these basics and borrow to fund clear capital and regenerative projects that will help the economy grow and create jobs. The National Assembly should therefore weed out borrowing to fund fancy and politically motivated projects such as school feeding programmes.
The fifth is that not all capital projects are worth funding with debts. The National Assembly must examine the projects on a case by case basis to determine what they will contribute to the regeneration of the economy in terms of jobs, ease of doing business, economic growth and whether the projects can sustain themselves over time. The implication of this recommendation is that projects must not be approved without details. Each project must stand or fall on its own merit. To be able to do this, the National Assembly must insist on feasibility studies, technical details, cost benefit analyses, etc, to be able to form a proper opinion on the projects.
The sixth is that the National Assembly must seriously consider our ability to repay the loan over the short, medium to the long terms. They should critically consider total debt to revenue ratio and debt service to revenue ratio as well. The fact that there would be a moratorium period before the repayment becomes due should not lure us into unsustainable borrowing. It would tempt the present occupants of political leadership to borrow and leave the debts for a period when they would have left power. The GDP will not pay back debts if it is not tied to taxation that will generate revenue for government or activities that will generate the foreign exchange we need to repay the debts.
Further, the seventh issue is for the National Assembly to request from the executive a detailed empirical repayment plan in accordance with the stipulations of the Fiscal Responsibility Act. This will include providing a forecast (with justification) of the sources of revenue that will be used in servicing the debts at maturity. General statements that improved infrastructure will reposition the economy to repay the debts will not do. The lawmakers should request specifics.
The eighth issue for the lawmakers to consider is as stated by one expert that it may not be uncommon for the Federal Government to propose such a borrowing plan without critically analysing the medium and long term effects of such a borrowing plan on the exchange rate position of the naira when the debts are matured to be serviced. The short term perceived gains of borrowing from external sources may be eroded by the medium and long term exchange rate risks associated with such loans. It is observed that on one hand, external debt servicing depletes foreign reserves of any developing economy thereby mounting pressure on the exchange rate position of the local currency of such developing country. On the other hand, exchange rate volatility increases the prices of imports in the domestic economy of developing countries thereby causing import-driven inflation in the cost of goods. This has the potency of eroding the purchasing power of the naira as is currently being observed between 2015 and 2016.
The ninth issue for the National Assembly is that for projects to be sponsored through debts by the Federal Government, it is expected that they should be widespread across the federation or their benefits available for reaping across the federation in a way and manner that recognises the diversity of Nigeria. Developmental projects should be evenly spread across the federation to give all sections a sense of belonging.
The last is that the National Assembly should review the projects to be funded to determine if they can be otherwise funded by local or foreign investments, public private partnerships, etc. Finally, this is not comprehensive of all the issues to be considered before arriving at a decision but a brief review. The National Assembly should properly interrogate all the options before approving the borrowing request.