The Federal Government takes steps to limit state borrowing

Concerned about state governments’ indiscriminate borrowing from banks and the capital market, the Federal Government has started a process to limit such borrowing.

As a result, the Fiscal Responsibility Commission, FRC, published recommendations on the conditions that a state government must meet before borrowing from any bank in the country.

Barrister Charles Abana, Head of the Fiscal Responsibility Commission’s Directorate of Legal, Investigation, and Enforcement, said this yesterday at the Growth Initiative for Fiscal Transparency, GIFT, Parley with Civil Society Partners in Abuja.

The commission he said was shocked to find out that most banks in the country lure state governments into securing loans.

His words: “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 necessary 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 reconer 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.”

Speaking on he 2024-2026 Medium Term Expenditure Framework, MTEF, Abana noted 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.

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