The Introduction

Nigerian governments (both federal and state) have been active in the area of external borrowing for the better part of the last thirty years. That is probably why Nigerian governments’ external debts stock is a little over N1,28 trn (from Nigeria’s Public Debt Stock as at September 30, 2013 released by the Debt Management Office). Staggering!
So what if you don’t like the trend of borrowing from external sources and you are interested in knowing how the law can restrict Nigerian governments a bit more. The DMO Act can help!
The Debt Management Office (Establishment) Act of 2003 is Nigeria’s foremost debt management legislation. It establishes the Debt Management Office (“DMO”), provides for its structure and functions; and lays down the framework for debt management in Nigeria. The Act has eight parts and it is Part XI that deals with both internal and external borrowing in similar proportions.
The Nitty-gritty
The main section on external borrowing is Section 21 of Part XI of the Act.
However, let me start with the provision of Section 19 (3) which is to the effect that the DMO must participate in the negotiation and acquisition of external or internal loans used to finance a fiscal deficit in any financial year. This means that where the government wants to obtain an external loan for financing a gap, it must involve the DMO. The Federal Ministry of Finance nor the Executive Council cannot do alone. But Section 19 applies to the Federal Government alone as the section clearly states meaning State governments need not involve the DMO in such negotiation.  That is the first restriction placed on the FG when obtaining external loans.
The second restriction is that no external loan can be approved or obtained unless its terms and conditions have been approved by a National Assembly resolution.  (Section 21(1) of the Act). In effect, where the National Assembly has not passed a resolution approving the terms and conditions of an external loan agreement, such shall be ineffective and by implication cannot be serviced from the Consolidated Revenue Account.
Recall that, under Section 6(h) of the DMO Act, the DMO is expected to advise the Minister of Finance on the terms and conditions under which monies should are to be borrowed. Presumably, it is advise that the DMO gives the Minister on the terms and conditions of any loan that would form what is laid before the National Assembly. This again brings to bare the crucial role of the DMO as highlighted under Section 19(3) above.
Also the federal or a state government or any of their agencies cannot obtain an external loan except the loan is guaranteed by the Minister of Finance.  (Section 21(2) of the Act). The Federal Government (through the Minister of Finance or the latter’s delegatee) is empowered to guarantee external loans. This guarantee can be in favour of any of its agencies or State governments. So state governments cannot obtain external loans without the guarantee of the Federal government. The guarantee of the FG serves as a checkmate on State borrowing and protect the creditor in case of default.
A supporting provision to the above, is found in subsection 3 of section 22 of the Act which provides in essence that the Minister of Finance shall not guarantee an external loan unless the terms and conditions of the loan have been laid before and approved by the National Assembly. Infact this provision is in my opinion an aggregation of Section 21 as a whole.
One question that arises from these is that, where the terms and conditions of a loan agreement have been approved by the National Assembly, can those same set of terms and conditions be used to execute another loan agreement without it first being laid before the National Assembly and approved by same? My answer is in the positive, because Section 21 says ‘No external loan shall be approved or obtained by the Minister unless its terms and conditions shall have been laid before the National Assembly and approved by, its resolution’. Note that, it didn’t say ‘no external loan agreement’. So where the terms and conditions of a subsequent loan agreement has been laid before the National Assembly when being used for a prior loan agreement, it need not be ‘re-laid’ when being used for a subsequent agreement.
This position is supported by Section 27of the Act. By that section, the National Assembly can approve terms and conditions from time to time for the obtaining of external loans and issuance of guarantees by the Minister of Finance. Where the terms and conditions have been so  approved by the National Assembly, the government can enter into a loan agreement based on those terms and conditions without further recourse to the National Assembly.
The National Assembly has the power to request that a particular external loan agreement be brought before it for ‘further approval’.  Where it has done so, the agreement would be inoperative without its approval.
The Conclusion
These requirement and restrictions while they remain academically ‘soft’ have brought transparency into the borrowing process, something that was lacking in the past.

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Nigerian Law Today

NLT’s mission is to take legal-content writing to the next level in Nigeria by leveraging legal expertise and technology. We publish fresh, original, and insightful articles on areas of law we cover.

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