Cart before the horse?
THE Federal Executive Council's (FEC) approval, last week, of a floating bond for the Ministry of the Federal Capital Territory (MFCT) exemplifies the trouble with our public finance system. FCT Minister Bala Mohammed had, at the end of the weekly executive council meeting, announced that the council had granted approval in principle to his ministry to float a development fund.
In the words of the minister: 'I have craved the indulgence of the Coordinating Minister for the Economy and she has agreed and the council has noted our recommendation to float an FCT Development Fund. That we can float the bond after we have established a sound legal framework with the establishment of the FCT Revenue Board that we can task to float the bond so that we can pay our debts (our emphasis) and do new projects and programmes'.
The debts here refer to the ministry's staggering N420 billion liabilities said to have been incurred in the last 20 years.
Surely, there can be nothing wrong with the quest to explore alternative sources of funds to fast-track the development of the city - if that was the idea. Indeed, we see this as inevitable at some point, given the influx of population into the city and the need to extend vital services to the residents as quickly as possible. And just as the idea of an FCT Development Fund may well be one whose time can no longer be delayed, the main bone of contention is whether debt recycling as proposed in the bond floatation can be said to meet with the criteria of such a fund. This is where we disagree.
Of course, we understand the attraction to the bond option. Not only are the funds cheaper, they are of longer duration and hence more convenient. However, we do not accept that these should be a licence to crowd the market with all manner of requests. And, as we have seen not too infrequently, it is just as prone to abuse as other sources of funds. And contrary to what is generally believed, the bond option is never a substitute to proper sound financial engineering or discipline; it does not offer guarantees that the proceeds would not be abused.
And if we may add in this particular instance - nothing in the financial records of the MFCT lends to any optimism that that the funds from the bonds will be better utilised. Its pile of unserviceable debts of nearly two decades would seem to suggest a need for new orientation.
But that is not the only reason why the bond idea is suspect. Given that no details or specifics are supplied aside general statements of intentions, the quest comes across as woolly. More inexplicable however is the FEC's blanket approval, even when the so-called legal framework is yet to be in place. The latter seems to us a case of putting the cart before the horse, or rather an instance of working to a pre-determined answer.
We expect the MFCT to put its financial house in order if it wants to be taken seriously. We do not think it has done enough to overhaul its machinery for revenue collection or even to eliminate avenues for leakages, both of which are vital to shoring up its revenue. A better way is to explore other creative ways to retire its mountain of debts.
We cannot endorse the idea of digging new financial pit to fill up an existing hole. It is wrong.