FG Takes Steps to Curb Excessive Borrowing by States

The federal government has initiated a process to regulate the borrowing activities of state governments from banks and the capital market, following concerns over their rising debt levels. The Fiscal Responsibility Commission (FRC) has issued guidelines on the conditions that state governments must fulfil before obtaining loans from any bank in the country.

This was disclosed by Barrister Charles Abana, the Head of the Directorate of Legal, Investigation and Enforcement at the FRC, at the Growth Initiative for Fiscal Transparency (GIFT) Parley with Civil Society Partners, in Abuja, yesterday.

He said the commission was surprised to discover that most banks in the country entice state governors with attractive offers to borrow from them, without proper compliance with the fiscal responsibility laws.

He said, “At the commission, we have decided to give them the template and we will go ahead to make sure that the Central Bank of Nigeria (CBN) issues a proper guideline to banks on how to go about getting all the requirements and compliance fulfilled before lending to the states, unlike the past when they just go to the minister and the Debt Management Office (DMO).

“If we don’t put some checks on them, and make it not too easy for them to borrow, I don’t think we will come out of this debt situation.

“We had a meeting in Lagos with banks to study debt patterns, how do banks give out loans and how they recover it. At the meeting, it was revealed that as soon as state governors constitute their cabinets, bank officials swoop on them with mouth-watering offers to lure them into borrowing from the banks.”

He also commented on the 2024-2026 Medium Term Expenditure Framework (MTEF), noting that “the country’s fiscal deficit (including project tied loans) as a percentage of GDP will keep increasing over the medium term from 3.83 percent, 3.89 percent and 3.92 percent respectively of the projected GDP.

He added, “Borrowing will increase over the three years while foreign borrowing will increase in the first two years of the medium term.

“The proposed new borrowings are in the sums of N7.808trillion, N8.539trillion and N10.072trillion respectively for the years 2024, 2025 and 2026.”

The FRC official recommended that there should be a reduction of overhead capital and the cost of governance so as to make more resources available for developmental capital.

He also suggested that each of the capital expenditures should have a proper cost benefit analysis open to the public.

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