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October 7, 2026 - 7:20 PM

Borrowing Against The Law

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The figures presented by the Debt Management Office as at March 2021 shows that Nigeria’s total debt stock is N33, 107trn. This comprises of debt stock of the Federal Government, thirty six state governments and the Federal Capital Territory (FCT). Further breakdown of the debt stock shows that promissory notes was in the sum of N940.220 billion, domestic debt stock stood at N20,637billion while the external debt stock remained at USD 32.86 billion. The federal government went further to obtain another loan in June and as at July the debt stock rose to N35.465 trillion.

Recurring debt of the Federal and sub-national government have led to the continuous deficit financing of the national budget, with 30% of annual budget allocated for debt servicing. In 2020 the sum of 3.7trn was utilize for debt service, 2021 the sum was 3.12trn and the proposed 2022 budget has the sum of 3.60trn earmarked for debt service. Assuming Nigeria doesn’t borrow for the next ten years, the current amount earmarked for debt service would clear off its debts, but with the level of fiscal indiscipline displayed by the various tiers of government this remains mere wishful thought.

Worst still is the fact that the national budgets have been running on deficit financing for the past eight years. Worse still, is the fact that the minister of finance has reaffirmed that Nigeria will continue to borrow to fund infrastructural project. On the contrary, with the volatility of the exchange rate and the poor internally generated revenue, the only option available for Nigeria to rebound economically, is to expand its tax net, develop an implement economic policies that would strengthen the naira and to abide by the fiscal laws governing the country. The Fiscal Responsibility Act in S.12 states that the aggregate expenditure and aggregate amount appropriated by the National Assembly for each financial year shall not be more than the estimated aggregate revenue plus a deficit, not exceeding three percent of the estimated Gross Domestic Product or any sustainable percentage as may be determined by the National Assembly. Also S.41 (1) of the Act provides the rules for borrowing as follows;

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 amortization period, subject to the approval of the appropriate legislative body. This provision has been grossly violated as most recent borrowings have been used equally for recurrent expenditure. Expenditures related to Covid-19 interventions couple with the heightened insecurity could be adduced to the increased recurrent expenditure. The continuous presentation of supplementary budget after the main budget has been approved indicates that the process in the preparation and development of the Medium Term Expenditure Framework is not well thought-out and best described to as faulty. The FRA S. 36 1 provides that the creation, expansion or improvement in government action which result in an expenditure increase shall be accompanied by (a) an estimate of the budgetary or financial impact in the year it becomes effective and in two subsequent years, and (b) a statement by the person requesting for the expenditure, stating that the increase is consistent with the Appropriation Act and the Medium- Term Expenditure Framework. Against the provision of the law, it has been observed that most of the supplementary budget requests are to be funded from borrowings which are not tied to the MTEF

In addition S.44.(1) provides that any government in the federation or its agencies 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. Against the provision of the law, most of the recent debts were not accompanied by any cost benefit analysis or repayment plans.

The FRC is mandated to publish on a quarterly basis, a list of the government in the federation that has exceeded the limits of consolidated debt, indicating the amount by which the limit was exceeded. The Act also provided that violators of the limit shall be prohibited from borrowing from internal or external sources except for refinancing of existing debts. However, the FG and states have repeatedly justified their continuous borrowing with the size of the GDP which in actual terms does not show the true reflection of the gross national income.

In order to forestall the negative trend, the FRA should be amended to contain provisions that make it mandatory for national and sub-national government to provide information on their consolidated debt profile in the preparation of their Medium Term Expenditure Framework. This information would be used as a guide for the approval or disapproval of future loans by the National Assembly. Also the provision of the Act mandating government to ensure that the level of public debt is as a proportion of national income and held at a sustainable level as prescribed by the National Assembly be fully enforced with evidence. Sanctions for violations should be prescribed as well.

 

 

Victor Emejuiwe

Good Governance/Public Affairs Analyst

08068262366

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