In a move to curb excessive borrowing by state governments from banks and the capital market, the Federal Government has initiated a process overseen by the Fiscal Responsibility Commission ,FRC.
The FRC has issued guidelines outlining the conditions state governments must meet before borrowing from any bank in the country.
This development comes as a response to the revelation that many banks entice state governments into securing loans.
Barrister Charles Abana, Head of the Directorate of Legal, Investigation, and Enforcement at FRC, disclosed this during a discussion at the Growth Initiative for Fiscal Transparency in Abuja.
Abana expressed the commission’s concern about banks easily luring state governments into obtaining loans.
To address this, the FRC plans to provide a template and work with the Central Bank of Nigeria to establish proper guidelines for banks.
The goal is to ensure that all necessary requirements and compliance are fulfilled before lending to states, a departure from the past practice where loans were secured with minimal oversight.
Abana highlighted the FRC’s efforts to study debt patterns, especially how banks extend loans to state governments. He shared insights from a meeting with banks in Lagos, where it was revealed that banks approach state governors with enticing offers as soon as they constitute their cabinets.
Discussing the 2024-2026 Medium Term Expenditure Framework, Abana pointed out that the country’s fiscal deficit as a percentage of GDP is expected to increase over the medium term.
The proposed new borrowings for the years 2024, 2025, and 2026 are in the sums of N7.808 trillion, N8.539 trillion, and N10.072 trillion, respectively. Abana recommended a reduction in overhead capital and the cost of governance to allocate more resources for developmental capital. Additionally, he emphasized the importance of conducting proper cost-benefit analyses for each capital expenditure, making the information accessible to the public.
The FRC official also advocated for the privatization of more public assets to increase resources from such exercises while reducing recurrent expenditure.
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