Doctrine of necessity and debts


To repay a short-term ways and means loan of around N23tn received from the Central Bank of Nigeria, the Federal Government is offering a swap of a nine per cent long-term bond of 40 long years to the CBN.

Expectedly, the rubber stamp Nigerian Senate has promptly forwarded the request to the Senate Committee on Finance for expeditious consideration and passage. After all, Senate President Ahmed Lawan has pledged that the ninth Senate will grant practically anything the regime of Major General Muhammadu Buhari (retd.) wanted.

That is why the Minister of Finance, Budget and National Planning, Zainab Ahmed, is commending Senator Olamilekan Adeola, Chairman of Senate Committee on Finance, that has consistently recommended annual budgets that favour personal emoluments, travels and tours and general overheads over infrastructure, for the approval of the Senate.

By the way, the Federal Government, with a voracious appetite for loans, is preparing to raise domestic loans to N22.57tn. The N819.54bn 2022 supplementary budget to be spent on water supply, dams and irrigation projects, will raise the N6.26tn deficit of the 2022 budget to N8.17tn.

But back to the conversion of the short-term ways and means debt to long-term bond, the rule of thumb in accounting, finance and investment circles is that you should not use short-term repayment plans to resolve long-term debts and vice versa. It muddles up your cash flow.

CBN ways and means is an emergency loan facility given by the CBN to the Federal Government to meet revenue shortfalls arising from delayed revenue receipts in the short term. Short-term loans like bank overdrafts are not expected to exceed 12 months, whereas long-term loans or debts typically run beyond 12 months.

A contrast between CBN treasury bills and bonds should help bring the difference home in clearer terms: The life of treasury bills, loans taken by the CBN from members of the public usually lasts for 90 days, 180 days or 360 days, whereas CBN bonds are long-term loans that extend beyond 12 months.

By seeking Senate approval to replace its short-term CBN loan with a long-term loan, the Federal Government is enlisting the usually pliant Senate to join in a conspiracy to breach Section 38 of the CBN Act, 2007.

The desperate move is clear evidence that the Federal Government is having issues with generating revenue, and there are no clear-cut ways to reverse the trend and return to liquidity in the immediate term.

Whereas the first step in solving the problem would have been to check the theft of more than 500,000 barrels of crude oil per day, get the 450,000 barrels per day processing capacity of government refineries to work and end the importation of petroleum products.

Section 38(3) of the CBN Act, 2007 says: “All advances (by CBN to the Federal Government)… shall be repaid (a) as soon as possible, and shall, in any event, be repayable by the end of the Federal Government financial year in which they are granted.

“And if such advances remain unpaid at the end of the year the power of the Bank to grant such further advances in any subsequent year shall not be exercisable, unless the outstanding advances have been repaid.

“And (b) in such form as the bank may determine, provided that no repayment shall take the form of a promissory note or such other promise to pay at a further date or securitisation, by way of treasury bills, bonds, certificates, or other forms of security, which is required to be underwritten (or guaranteed) by the bank.”

The Federal Government wants to exploit the phrase, “And if such advances remain unpaid at the end of the year, the power of the bank to grant such further advances in any subsequent year shall not be exercisable, unless the outstanding advances have been repaid,” which could mean that if you get rid you of the short-term ways and means loan by converting it into a long-term loan you can take another one because it no longer exists.

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Also, the phrase, “Unless the outstanding advances have been repaid,” sounds like a befuddlement that could be advanced as a doctrine of necessity to knock off the bottom of that part of Section 38(1,b) that prohibits securitisation of ways and means debt.

This loose noose serves the Buhari regime’s voracious appetite for loans, now in excess of N47tn. Interestingly, Governor Godwin Emefiele, custodian of CBN values, appears either indulgent of the president and his minister’s plot to erode the values of CBN.

A former Managing Director of Assurance Bank, Chika Mbonu, recently explained a doctrine of necessity justification for the Federal Government’s illegal move. But when he argued that no parent would throw a daughter who got pregnant outside of wedlock on the streets, some thought he was speaking tongue in cheek.

He had alluded to the debacle that Nigeria entered when it was discovered that the 1999 Constitution made no provision for transferring power from a president who died suddenly to his vice president.

Earlier, the co-anchor of Arise TV’s The Morning Show, Rufai Oseni, and anchor of Global Business Report and Business Editor of Arise TV, Rotus Odirri, almost had a misunderstanding on the matter. While Oseni insisted that the intention breached the law, Odirri seemed willing to indulge the excesses of the Buhari regime.

One reason for the government’s attempt to kick the loan down the road is the burden of debt servicing. Early in 2022, debt servicing was N3.69tn. By December, it had ballooned to N5.24tn. Observers think it will spiral to N10.43tn by 2025, just three years away.

The stock of domestic and external debt owed by the Federal Government, 36 state governments and the Federal Capital Territory, rose from N42.84tn in June 2022 to N44.06tn by December 2022.

With the pretext of upgrading Nigeria’s infrastructure, and the excuse of dwindling oil revenue, the Buhari regime justifies its debt binge. Some think this pacman-type gobbling up of loans is avoidable.

If you will ignore the laboured syntax and mixed tenses in the English of Mohammed Kazaure representing Jigawa State in the House of Representatives, you will get the idea that the government is running some kind of escrow accounts holding as much as N73tn.

No one has challenged his loose claim, even as he suggests (in a rather simplistic manner) that the money could be used to pay off Nigeria’s local and foreign debts (including the CBN ways and means facility), fund the budgets without a deficit, and add the balance to the country’s foreign reserves.

Some observers think the Federal Government’s resort to the conversion of the ways and means loans into long-term loans is simply a lazy way to avoid coming up with appropriate macroeconomic policies that will empower citizens and corporate bodies to pay more taxes.

It’s also the government’s way to avoid the prosecution of big time crude oil bunkerers who take advantage of being friends of those in power to divert the commonwealth of the nation to their private coffers.

When the Executive branch, in a bid to cover its inadequacies, enters into cahoots with or blackmails the Legislative arm to engage in impunity, you further entrench disregard for the rule of law.

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