For the next few weeks, I will be looking at this issue of the mounting debts which the government in Nigeria is currently accumulating. This issue is particularly pertinent at this point in time because many Nigerians have been taken aback by the gargantuan amounts of debts currently burdening the country. The picture is made worse when one imagines that Nigeria has just a few years ago been released from the claws of creditor nations- mainly members of the Paris Club (a group of bilateral creditors). It was between 2005 and 2006 when the then government of President Olusegun Obasanjo negotiated its way out of debts of over thirty billion dollars.
Prior to that time Nigeria spent about a billion dollars every year to service its debts. Those debts were actually written off to just a little over three billion dollars. In fact, the whole negotiations were based on a buy back agreement. Nigeria was to pay twelve billion dollars to get an eighteen billion dollars write-off. The effort of the government of that day was led by then Minister of Finance Dr Ngozi Okonjo-Iweala. Incidentally Dr Okonjo-Iweala is the current Minister of Finance and the Coordinating Minister of the Nigerian economy. So as a result the thinking of many Nigerians is that why would one Minister take us out of debt and seven years later plunge us into it again? That’s ironical.
Current Debt Situation Report
Very recently the Director-General of the Debt Management Office (DMO) expressed fears over the exponentially escalating level of debts the Federal and State Governments are accumulating saying that Nigeria’s debt profile may hit twenty-five billion dollars by the year 2015. This is because according to the DMO, as at September 30th 2012, the country’s external debts stood at 6.2 billion dollars (that is almost one trillion naira) while the country’s domestic debts stood at 6.3 trillion naira (that is about forty billion dollars). The DMO forecasted that Nigeria’s external debts for 2013 is projected at 12.165 billion dollars, 14.585 billion dollars for 2014 and 16.765 billion for 2015.
Whether these high-sounding forecast is a lee-way for government to just keep borrowing is an issue for another week but for now let’s just keep looking at the current situation report. Also the DMO has said the debt to gross domestic product (GDP) ratio was 18.65 per cent. That is still some way off the 25-30 per cent ceiling that the Federal Government has set for itself. Interesting the country’s domestic debts are far and above the external debts but not in terms of projections. Because DMO’s projection of domestic debts is $7.125 billion for 2013, $7.792 billion dollars for 2014 and $8.444 billion dollars for 2015. Meaning that external debts, though currently lower than their domestic counters, would increase faster over the next three years.
…and the Law?
I will give the legal angle to it (or what I call emerging legal issues) in full in another post. But for now let me just postulate that two legal instruments are crucial to the issue of debts in Nigeria. They are the Debt Management Office Act of 2003 (after now referred to as the DMO Act) and the Fiscal Responsibility Act of 2007 (after now the FRAct). Interestingly, both of them are federal laws, so their potency to cover state government debts is minimal to considerable extents.
The DMO Act established the DMO which the principal agency in terms of debt management in Nigeria. Sorry to say that the DMO was established not with mandate to stop Nigeria from borrowing but to help manage the country’s debt. Thus, the law saddles it with the responsibilities of servicing external debts guaranteed or directly taken by the Federal Government and also debts taken by the State Governments where such debts are guaranteed by the Federal Government (FG); set guidelines for managing Federal Government’s financial risks; advice the FG on structuring and financial loans, etc. In a nutshell, they are a debt management agency as the name implies. They cannot stop they FG or the Finance Minister from taking loans assuming they do not agree with any borrowing scheme. They can only advice. They do not even execute loan agreements as that is the duty of the Minister of Finance, who also guarantees the loans. Of crucial importance is that the law does not allow the FG to take external loans unless they are approved by the National Assembly.
The FRAct on its part establishes the Fiscal Responsibility Commission. It provides that the FG shall set a limit on the consolidated debts of the Federal and State Governments. Any Government that exceeds such limit will be denied further borrowing until the excess is reduced. Conditions for borrowing under the FRAct include legislative approvals for the loans and their purposes, 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 the pitfall of government in its debt management. The Nigerian public is also very skeptic about government’s ability to meet with the very vital obligation in borrowing as several billions of borrowed monies have ended up being looted.
Subsequently, I shall be investigating whether the Federal and State Governments are playing by the rules of the game.
See you next week…
 The country paid so much but still wasn’t able to pay the principal owed.
 That is going by the current rate of N157 to $1.
 That is still considerably below the globally accepted ratio of 40 per cent (of debt-GDP).
 See Section 6 of the DMO Act.
 See Section 21(1) 0f the DMO Act and Section 42 of the FRAct.
 However, the FRAct allow the President to go beyond the limit where he feels there is an urgent threat to national security or the sovereignty of the country.