PART 3

For the past two weeks now we have been looking at this issue of Nigeria’s rising domestic and external debts. In the first part, we looked at the current debt situation and then some legal provisions relating to debt management. In the second part, we looked at the justification for borrowing and attempted to counter some of those justifications. Finally, in this third part we shall be concentrating on the legal angle to it. We shall be answering the questions; what are the legal obligations of government in debt management? Are these obligations being kept? Can the law be of any moment in this area?
Emerging Legal Issues
First of all, note that the 1999 Constitution (as amended) does not make specific provision for debt management. Section 314 CFRN that merely mentions debt, is of no moment to our dissertation. But the Constitution gives the National Assembly exclusive power to make laws for the borrowing of moneys within and outside Nigeria for the purposes of the Federation or for any state and public debt of the Federation. Also it has powers over external affairs.[1]This implies that it is only the National Assembly that can make law for the debt regulation and management in Nigeria.[2]This to me makes absolute sense because debt, whether federal or state procured, directly impacts on the economy and Nigeria has one economy not 36 economies. So, it is the National Assembly that legislates on debt management. Recently, it has been reported that the DMO has been going to various states campaigning that they all pass debt management laws as the FG has done. While that is laudable as a strategy to raise awareness for the need for states to set up effective legal structures for debt management, it does not make constitutional sense. Debt legislation is within the legislative realm of the Federal Government not states. The legal implication of all this is that both the Debt Management Office (Establishment) Act 2003 and the Fiscal Responsibility Act 2007 applies to all the states even if some may have gone ahead to pass either public debt management laws or fiscal responsibility laws in their states.
However, this argument is not as straight forward as we has been put above.
A thorough reading of the Concurrent Legislative List[3]does show some perceived measure of inconsistency in this regard. Item 2 of the Concurrent List empowers the House of Assembly of a state to make provisions for grants or loans from and the imposition of charges upon any of the public funds of that State or the imposition of charges upon the revenue and assets of that State for any purpose notwithstanding that it relates to a matter with respect to which the National Assembly is empowered to make laws. Item 1b contains a similar provision but this time with respect to the National Assembly. Now, we must acknowledge that bonds (whether sovereign or domestic bonds) are usually charged on the allocation or account of the issuing authority. So where it is a state that is the issuing authority for example, the repayment is charged to the allocations accruable to the state. That is why the issuing state must forward an Irrevocable Standing Payment Order (ISPO) before the issuance of the bonds is permitted by the regulatory authorities. The domestic debts of states are more often than not acquired by issued bonds. Does this now mean that by the provision of Item 2 of the Concurrent List, a state government has powers to make laws for the regulation and management of bonds in their states? We’re inclined to think so. Because Item 2 refers to “imposition of charges upon the revenue and assets of a state for any purpose”. But if we look at the Item 7 of the Exclusive List, the reverse would be the case. We will not belabour the argument further but we still think that borrowing monies within and outside Nigeria is a matter exclusively preserved for the National Assembly.

Let me continue by disabusing your mind. Despite strong constitutional enablement, the law in this area has not been prevalent  This is one area of societal development in Nigeria where we have witnessed the ineptitude of the law as an instrument of social engineering. The law has obviously not been a tool, or better put, a hedge to stop the government from towing the path of borrowing. A few states in this country have passed debt management laws also. In past we have seen some statutes cover specific external borrowings, e.g. the Railway Loans (International Bank) Act[4], External Loans Act[5]and External Loans Rehabilitation, Reconstitution and Development Act[6]were all specific legislations that enable specific borrowings at their time. But the DMO Act was the first attempt to provide serious legal structure for debt management after which we had the Fiscal Responsibility Act in 2007.
The Nigerian DMO predated the DMO Act, in that its was created in 2000 but the enabling statute was enacted three years later. The move was to address the debt overhang which the government of Obasanjo inherited. The DMO Act deals with the borrowings of the federal and state governments. Under the Act, all loans to be obtained by the Minister of Finance must be approved by the National Assembly via a resolution. Also loans, whether federal or state, must be guaranteed by the Minster of Finance.[7]The Act in Section 27, also gives the National Assembly oversight functions with respect to the terms and conditions of the loan. Whether the procedure adopted in practice is a reflection of the letter of the law is another issue. But one thing is clear, the law did not leave us in the dark as to who should do what.
As we pointed out in the first week, the Fiscal Responsibility Act (or just “FRAct”) established the Fiscal Responsibility Commission as the principal enforcement agency to monitor and enforce the provisions of the Act. The purpose of the FRAct is to ensure prudent management of the nation’s resources and to secure accountability and transparency in Government’s fiscal operations. No wonder the FRAct provides conditions for borrowing to include legislative approvals for the loans and their purposes, prior authorisation in the Appropriation Act or Law (as the case may be), cost-benefit analysis and that the loans should be used for the capital expenditures for which they meant and nothing else. It is this last obligation that is usually one of the main pitfalls of government in its debt management. In the past we have seen government plunder borrowed monies on what is popularly known as ‘white elephant projects’ many of which were not initially planned for or poorly planned.
Noteworthy is the fact that our legal development has not got to the level of say the USA where there is legally binding debt ceiling.[8]Although in Nigeria, something similar exists. Under Section 42 of FRAct, where the President is empowered to set an overall limit for the consolidated debts of the Federal and state governments. The FRAct does not however state how often this be done. So far the government has not exactly set a debt ceiling for itself except when it set a debt to GDP ratio of 25 per cent. Meaning as GDP grows yearly, borrowing can also grow. But the FRAct in Section 42 does not specify whether this would do. But, it is my view that the FRAct from its wordings did not refer to a debt to GDP ratio “target” as debt limit rather it says ‘overall limits for the amounts of consolidated debt of the federal, State Governments’. It means therefore that the President should set an amount as the debt ceiling of the government (subject of course to approval by the National Assembly). Interesting this would apply to both the federal and state governments. Now, where the President set such limit, the limit is not to be violated as violators are prohibited from borrowing from internal or external sources until their debt is brought to within the limit. Such government is given a period of three quarters to comply.

Interestingly, any tax-paying Nigerian can enforce the provisions of the FRAct against the government in a Federal High Court.[9]This obliterates the issue of locus standi. This is most welcomed as every person has an interest in the economy of the nation.
Conclusion
Let me conclude by emphasizing the points I have been trying to make since the first post. The first is that Nigeria’s debt level is unsustainable and unacceptable. Also government-both state and federal-are not justified to borrow at the current rate they doing now. Furthermore, some legal issues have arisen and will continue to arise as the country seeks ways of effectively manage its debts. To make laws is one thing and enforce them so that their purpose will be felt is another. For the debt management systems that currently exist to stem Nigeria’s rising debt profile then government and its parastatals at all levels must be ready to make it work.
Thank you guys! Next week.


[1] Items 7, 26 and 50 of the Exclusive Legislative List, Part 1, Second Schedule to the Constitution.
[2] By the following authorities, all matters in the Exclusive Legislative List are the exclusive preserve of the National Assembly. They are Section 4(2)&(3) of the CFRN (as amended), and Attorney General of Abia State & 35 Ors v. Attorney General of the Federation (2003) 19 WRN 1.
[3] This list contains the concurrent powers of the federal and state legislatures.
[4] Cap 387 Laws of the Federation of Nigeria (LFN) 1990.
[5] Cap 122 LFN 1990.
[6] Cap 123 LFN 1990.
[7] Section 21 oof the DMO Act.
[8] Which is currently above $ 16 trillion.
[9] Section 51 of the FRAct.

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