Cash Management and Borrowing Guidelines

A government that is solvent on paper can still fail to pay salaries on the last day of the month, because the cash is not where it is needed when it is needed. Cash management is the discipline of making sure that the right amount of money is available at the right time, while inflows are realised, outflows are controlled and idle balances are invested.

When cash is short for good reasons, government borrows. The rules for borrowing are also rules of discipline, because debt that is not approved, not tied to capital and not within the capacity of the borrower leads to the kind of crisis from which Nigeria had to be rescued in the exits from the Paris and London Club arrangements.

This topic covers what cash management is and its concerns; how the enabling environment is created; the strategies to improve control, including warrants, embargo on releases, the payroll system, the Treasury Single Account and the medium-term expenditure framework; the factors working against it; and the borrowing guidelines: the legislation, the role of the National Assembly, the documentation and steps for Federal and State external borrowing, loan negotiation, domestic borrowing, borrowing in the capital market and borrowing from commercial banks.

The next topic is Statutory financial statements of government on the cash basis.

This was tested in May Diet, 2021, Question 3 (20 marks), where part (a) (10 marks) asked for five strategies to enhance cash management control and five factors working against it, and in November Diet, 2024, Question 7 (15 marks), where part (b) (4 marks) asked for the steps before seeking the National Assembly’s approval for external borrowing and part (c) (6 marks) for the requirements for a State to raise funds on the domestic capital market.

Read loss of stores, boards of survey and government losses first.

Cash management

Cash management is carried out by the Budget Office of the Federation to ensure that the right amount of money is available to fund government spending in good time, and that obligations are met as they fall due. It is concerned with:

• managing cash flow effectively and efficiently
• cash planning
• realising inflows
• controlling outflows
• avoiding discretionary spending
• minimising the deficit
• borrowing within limits
• investing excess or idle cash

Creating an enabling environment

• effective and efficient leadership and capacity building;
• implementation of the Fiscal Responsibility Act and public sector reform;
• a performance-oriented environment in government; and
• use of the medium-term sector strategy to change the habit of ineffective budgeting.

Fiscal responsibility can be described in several ways:

• reducing debt
• eliminating debt completely
• balancing the budget
• reducing the debt burden (growing output faster than debt)
• keeping the debt burden constant
• keeping unemployment low and inflation under control

Strategies to enhance cash management control

1. Indicative envelopes are given to ministries, departments and agencies.
2. All costs proposed by agencies for the budget are examined by the Ministry of Finance before they are admitted.
3. All disbursements from the Consolidated Revenue Fund must be in line with the Constitution and the Appropriation Act.
4. The authority to disburse is conveyed by the Minister of Finance after the budget is approved, through financial warrants and, where needed, an authority to incur expenditure.
5. Recurrent warrants are issued monthly for personnel cost and quarterly for overhead; capital warrants quarterly.
6. Lump-sum releases of 100% are not allowed; where such a provision is admitted for exceptional reasons, the proposals financed from it are examined by the Budget Office.
7. Automation of budget data capture and computation templates improves control of expenditure.
8. An embargo on releases to agencies where necessary enforces discipline.
9. Electronic movement of funds and information eases citizens’ and taxpayers’ access to government services.
10. The Integrated Personnel and Payroll Information System identifies ghost employees and ghost pensioners and manages the wage bill: it centralises payroll, makes staff payment convenient and avoids waste, makes personnel records easy to store and retrieve, aids manpower planning and budgeting, shows actual emoluments and helps decisions.
11. The Treasury Single Account, an accounting system in which all government revenue is collected into one account held at the Central Bank and payments also go through it, which promotes accountability, reduces misapplication of public funds, supports reconciliation of receipts and payments, and removes the weak cash control of many scattered accounts.
12. The medium-term expenditure framework, a top-down and bottom-up system of public expenditure management that aims to achieve macro-economic stability without harming development, direct most spending to strategic priorities, assure the predictability of funding and improve value for money.

Factors working against effective cash management and other reforms

1. Many public enterprises have long disregarded accountability.
2. Many do not produce annual reports and audited statements promptly, because of inefficiency, negligence and maladministration.
3. Funds are allocated each year without the accountability reports of earlier years; the Accountant-General should request audited statements before releasing subventions.
4. Poor leadership by agency managements and inadequate staffing are a root cause of ineffective financial management.
5. There is no effective management information system supported by information and communication technology.
6. Practitioners are more interested in spending than in raising revenue, assuming that inflows will always be enough and losing sight of revenue generation.

Borrowing guidelines for the Federal and State governments

After Nigeria exited the Paris and London Club debt arrangements, the Debt Management Office developed the external borrowing guidelines (2008 to 2012) and the guidelines on sub-national borrowing, to guide the Federal and State governments and their agencies, with the aim of avoiding a return to unsustainable debt. They are in the National Debt Management Framework, approved by the Federal Executive Council in 2008.

The legislation is: the 1999 Constitution; the Debt Management Office (Establishment, etc.) Act, 2003; the Investments and Securities Act, 2007; the Fiscal Responsibility Act, 2007; and the National Debt Management Framework.

The role of the National Assembly

Before a request for external borrowing by the Federal Government and its agencies is considered, the National Assembly must give:

• (a) approval of the annual borrowing programme
• (b) approval of the terms and conditions of the external loans in the programme
• (c) approval of the overall limits for the amounts of consolidated debt of the Federal, State and local governments, set by the President on the Minister of Finance’s advice
• (d) prior authorisation in the Appropriation Act or other law for the purpose for which the loan is to be used

Steps for the Federal Government before seeking approval

1. Prepare an annual borrowing plan with the terms of the external loans; the overall limits for consolidated debt; a three-year medium-term borrowing plan, repayment schedules and the overall borrowing limit as part of the medium-term expenditure framework; and the project documents for the loan, in line with national priorities.
2. The Debt Management Office appraises agencies’ borrowing proposals and project documents for conformity with the guidelines and priorities and recommends to the Minister.
3. The Minister presents the annual borrowing proposal to the Federal Executive Council for approval.
4. The President submits the plan to the National Assembly as part of the proposed annual budget.

Documentation for States

• evidence of approval of the loan by the State Executive Council;
• a resolution of the State House of Assembly approving the borrowing;
• submission to the Minister of external borrowing proposals for the next fiscal year not later than 90 days before that year (for the year beginning 1 January 2027, by 3 October 2026), for inclusion in the public sector external borrowing programme; and
• the proposal must state the purpose and its link to development priorities (the proceeds solely for long-term capital expenditure and human capital development), a cost-benefit analysis and copies of the Executive Council approval and House of Assembly resolution.

Procedure for States. The Minister sends the proposal to the Debt Management Office to check the debt sustainability of the State or agency, so that it has not over-borrowed; on its recommendation and the Minister’s final approval, it is included in the annual budget for the Federal Executive Council; the annual budget with the borrowing plan then goes to the National Assembly.

Negotiation and signing

After the National Assembly approves the budget, a negotiation team led by the Minister (with the Debt Management Office, the Federal Ministry of Justice and the beneficiary State or agency) agrees the financing terms with the creditors. When the National Assembly approves the terms, the Minister signs all loan agreements for the Federal Government. A beneficiary State signs a subsidiary loan agreement with the Federal Government.

Federal and State governments and their agencies can obtain external loans only with the Minister’s approval, and the loans must be supported by a Federal Government guarantee.

Domestic borrowing

The Federal Government’s domestic borrowing is specified in the annual borrowing plan and presented to the National Assembly with the budget. States and their agencies are also governed by the Investments and Securities Act, 2007.

Borrowing from the capital market (requirements for a State)

1. Approval of the State Executive Council and a resolution of the House of Assembly.
2. The total of loans outstanding at any time, including the proposed loan, must not exceed 50% of the actual revenue of the body for the preceding 12 months.
3. The application to the Securities and Exchange Commission must include, among other documents, an original irrevocable letter of authority allowing the Accountant-General of the Federation to deduct at source from the statutory allocation if the body defaults.
4. A request to the Minister for an irrevocable standing payment order with the purpose and its link to development priorities, a cost-benefit analysis, the cash flow statements of the State and its agencies (to test viability and sustainability), and the Executive Council approval and House of Assembly resolution.
5. A debt sustainability analysis by the Debt Management Office: the monthly debt service ratio, including the proposed loan, must not exceed 40% of actual monthly revenue of the preceding 12 months.
6. Compliance with the other requirements of the Investments and Securities Act and the Commission’s issuing requirements.

Example. A State’s revenue for the last 12 months was ₦480bn, so its monthly average is 480 ÷ 12 = ₦40bn and its maximum monthly debt service is 40 × 40% = ₦16bn. Its borrowing limit is 480 × 50% = ₦240bn. With ₦150bn already outstanding, a new bond of ₦100bn would make ₦250bn, ₦10bn above the limit; the most it can raise is 240 − 150 = ₦90bn.

Borrowing from commercial banks

All banks and financial institutions that lend to the Federal, State and local governments or their agencies must obtain the Minister’s prior approval and state the purpose and tenor. When a State contracts a commercial bank loan, it gives the Debt Management Office the details. The lending bank gives the Office and the State’s debt management department periodic reports on drawdown and use.

The ideas in more depth

Why releases are phased

If a ministry received its whole year’s money in January, it could spend early, run out and ask for more, while the Treasury borrowed to fund the early release. Monthly personnel warrants and quarterly overhead warrants match releases to cash and keep a lever for the Minister: an embargo can be applied if revenue falls short. The ban on 100% lump sums closes the loophole that would defeat this.

Why borrowing is limited to capital and human capital

Debt is repaid by future taxpayers, so it is fair to use it only for assets and skills that will serve them. Borrowing for salaries or running costs passes today’s consumption to tomorrow’s citizens. The 50% and 40% limits add a test of capacity: a State that spends more than 40% of its revenue on debt service has little left for anything else.

Why the Federal Government guarantee and the irrevocable letter matter

Lenders will lend to a State at lower rates if they know that default is covered. The guarantee and the authority to deduct from the State’s statutory allocation make repayment nearly certain, but they also expose the Federal Government and the State’s own allocation. That is why so many approvals come before the guarantee is given.

Sources and references

• The 1999 Constitution; the Debt Management Office (Establishment, etc.) Act, 2003; the Investments and Securities Act, 2007; the Fiscal Responsibility Act, 2007; the National Debt Management Framework.

These points are stated as at 5 November 2026.

Worked examples

1. Monthly revenue.
   480 ÷ 12 = ₦40bn.
2. Ceiling.
   40 × 40% = ₦16bn.

1. Calculate.
   240 − 150 = ₦90bn.

1. Calculate. 3 October 2026.

How to answer in the exam

• Define cash management and then give the number of strategies or factors requested, each with a reason.
• For borrowing, state the approvals in sequence: State, Debt Office, Minister, Executive Council, National Assembly.
• Give the limits: 90 days, 50% and 40%.
• Mention the purpose test: capital and human capital only.

Common mistakes in the exam

• Confusing the 50% overall limit with the 40% service limit.
• Forgetting the House of Assembly resolution for a State.
• Saying that the Debt Management Office approves the loan; it appraises and recommends.
• Allowing 100% lump-sum releases.
• Omitting the Federal Government guarantee.
• Listing strategies without explanation.

Quick revision

• Cash management: planning, inflows, outflows, deficit, limits, investment. Strategies: envelopes, warrants, embargo, payroll system, Treasury Single Account, medium-term expenditure framework.
• Borrowing: Assembly approves programme and terms; States 90 days; debt 50%; service 40%; guarantee.

Practice questions

These are original questions written in the style of the Institute’s exams. Try each one before you open the answer. Section A is a recall check, because the paper itself is written.

Recall check: multiple choice

Section B style: written questions

A further written question

Model answers

Spotted a mistake? Tell us and we will check it.