The Federal Government has launched a process to draft rules aimed at controlling and setting conditions on state borrowing in an effort to curb excessive borrowing by state governments from banks and the capital market.
This development was revealed by Barrister Charles Abana, the Head of the Directorate of Legal, Investigation, and Enforcement at the Fiscal Responsibility Commission (FRC). Abana disclosed this during the Growth Initiative for Fiscal Transparency (GIFT) Parley with Civil Society Partners in Abuja.
Expressing concern over the indiscriminate loans secured by state governments, Abana emphasized that most banks in the country entice state governments into borrowing, prompting the need for stricter regulations. The Fiscal Responsibility Commission has taken the initiative to issue guidelines outlining the conditions that state governments must meet before obtaining loans from any bank in the country.
Abana stated, “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.”
He highlighted the necessity of introducing checks to make borrowing less accessible for state governments, expressing concern that without proper regulations, the nation may struggle to overcome its current debt situation. Abana also shed light on the commission’s efforts to scrutinize debt patterns by engaging with banks in Lagos.
During the discussion on the 2024-2026 Medium Term Expenditure Framework (MTEF), Abana raised alarms about the country’s fiscal deficit as a percentage of GDP, projecting an increase over the medium term. He noted that borrowing would escalate over the next three years, with foreign borrowing set to rise in the first two years of the medium term.
