FRC To Introduce Template For State Borrowing
By Patience Ikpeme
The Federal Government is taking measures to curb indiscriminate borrowing by state governments.
The Fiscal Responsibility Commission (FRC) has introduced a template and guidelines to be followed before lending to state governments.
This initiative aims to ensure that banks adhere to necessary requirements, preventing the past practice of lending without a comprehensive understanding of associated risks.
The newly introduced template will enhance risk management by providing banks with essential information before making lending decisions. Additionally, the FRC plans to request the Central Bank of Nigeria (CBN) to issue detailed guidelines to banks on lending to states. These guidelines will include requirements, such as proof of compliance with the Fiscal Responsibility Act, to safeguard both banks and states from financial challenges.
Barrister Charles Abana, Head of the Directorate of Legal, Investigation, and Enforcement at the FRC, revealed these measures during the Growth Initiative for Fiscal Transparency (GIFT) Media Parley with Civil Society Partners in Abuja. Abana expressed concern that banks were enticing state governments into securing loans, contributing to the nation’s overall debt.
To address this issue, Abana emphasized the need for checks on banks, ensuring compliance with necessary requirements before lending to states. He highlighted the FRC’s decision to provide a template and advocate for proper guidelines from the CBN, contrasting with past practices where banks approached ministers and the Debt Management Office (DMO) without sufficient scrutiny.
Regarding the current Medium Term Expenditure Framework (MTEF) with the National Assembly, Abana noted an anticipated increase in the country’s fiscal deficit percentage of GDP over the medium term. He also raised concerns about the proposed new borrowings and recommended a reduction in overhead capital, cost of governance, and privatisation of public assets to generate resources.
The FRC urged a moratorium on new debts, setting targets for employment creation, capital importation, and Foreign Direct Investment (FDI). They emphasized the need for a debt ceiling, consideration of state-contingent debt instruments (SCDIs), and restructuring debts for a longer amortization period to reduce the percentage of retained revenue committed to debt service.
In conclusion, the FRC advocated responsible fiscal practices, discouraging borrowing for recurrent expenditure and urging strategic measures for sustainable economic growth and development.