Tuesday, 12 January 2016

SANCTIONS FOR PUBLIC LOANS ABUSE

Three issues, namely greater financial discipline, prudent expenditure and strict observance of due process are among those thrown up by the recommendation of stiff sanctions on government officials (especially state governors) who misapply loans meant for overall improvement of the people’s living standards. Chairman of the Senate Committee on Foreign and Domestic Loans, Senator Shehu Sani, who made the call the other day, is in good stead to know the grave import of the arbitrary circumstances currently underlying public loans procurement in the country; and the Debt Management Office (DMO), to whom the advice was presented for onward transmission to government, is an appropriate agency to transmit it.

Ultimately, there is no alternative to absolute transparency in the procurement and implementation of loans, as a means of preventing abuse and corruption regarding the subject.

Speaking at a meeting with the DMO which had appeared before the Committee to defend the federal government’s borrowing plan under the 2016-2018 Medium Term Expenditure Frame work and Fiscal Policy Strategy (MTEF/FPS), Senator Sani reportedly decried a situation where government officials applied for local or foreign loans under the guise that the money would be used for viable projects, only to divert it to other uses without anything to show for it. Sadly, the scenario painted by Sani is all too common in the public sector; and accounts for the huge debt profile of government without visible commensurate benefits for the populace.

The Senate Committee was probably right to observe that the sore of financial impunity on public loans has festered in the face of failure to sanction erring officials; nevertheless, it is important that the Senate looks inward as its first step to addressing the malice, by curtailing its own excess of injudicious use of public fund, as manifested, for instance, in its decision to spend N4.7 billion to buy cars for its committees. Therefore, in exercising its oversight functions, the Senate should be appropriately concerned that pronouncements by the Legislature are translatable into policies that will be effectively implemented.

It is befitting for the Upper Chamber to seek proper utilisation of foreign loans, which are guaranteed by the Federal Government. In any event, prior Senate clearance is required for such loans. This role, however, is at present limited to the Senate review of existing foreign debt profile of the state.3

The international donor agencies have prescribed procedures for loan drawdown, at stated stages of contractual obligations. Understandably, the donor countries tie procurements to their own countries. The leading development finance institution in the world is the International Bank for Reconstruction and Development (The World Bank). Based on experience worldwide, the World Bank is meticulous. In cases where loan proceeds are for procurement of equipment (to be imported into Nigeria, exclusively from member nations), the steps are clearly defined. The contractor must submit shipping documents before a payment of the percentage stated in the contract. On the delivery of the goods, the beneficiary agency will confirm receiving the items. In each payment, the World Bank would release funds only after the Withdrawal Application Request had been duly signed by the signatories selected and approved by the Agency of the Federal or State Government.

But public officials appeared to have perfected ways of circumventing these procedures, often for selfish gains. This is especially so in contracts involving local construction (roads, waterworks, pipelines, housing) which present greater challenges. Over the years, International Donor Agencies have evolved a continuous performance contract for payments directly to contractors, using internationally reputed consultants.

The Senate committee has rightly identified government officials because they have clear roles to play in the preparation and implementation of the projects financed by foreign loans. As political appointees are birds of passage, the civil servants are the “permanent” sustainers of each project. Therefore, an in-coming state governor must request information on the foreign and domestic loan profile of the state, as well as the loans being processed. A governor must also make public disclosure of loans inherited from a preceding administration, including the schedule of repayment and the duration of the loan obligation. The projects must be clearly explained to the public who need to have concrete evidence of work done in stages.

At present, foreign-financed projects are shrouded in mystery thereby eschewing public awareness. In all cases, there is a long time span between project conceptualisation and implementation caused by bureaucratic delays, changes in political leadership and the insistence of the Donor Agency in due process. After all the steps are fulfilled, there must be a public tender which has a standard template.

It is noteworthy that contributing nations to the International Monetary Fund (IMF) have special drawing rights for long-term loans at concessionary interest rate (as low as one per cent) to develop infrastructure. It is a statutory benefit of membership. As a member, Nigeria has not benefitted sufficiently (commensurate to its contributions) because of bureaucratic delays, changes in political leadership and the insistence of the donor agency in due process which had not always been fulfilled due to lack of discipline.
The Senator’s call for sanctions harped on punishment; the proverbial “medicine after death.”

Clearly, this will serve to deter potential culprits. But, as there are laid down procedures for the drawing and application of foreign loans, the emphasis should be directed at preventing misapplication of public funds, including loans both foreign and domestic. (Source: Guardian)