The Federal Government through the Fiscal Responsibility Commission (FRC) on Saturday declared loans contracted by 11 State governments and public institutions from five banks as 100 percent failure.
Victor Muruako, the executive chairman FRC, disclosed this at a stakeholder dialogue on implementing Section 45 of the Fiscal Responsibility Act (FRC) 2007 at the weekend in Lagos.
He noted with a sense of alarm that none of those loans passed FRC’s basic compliance test. “This 100 per cent failure rate is enough to warrant a discussion of this nature,” he said.
According to him, according to it’s mandate in section 3 of the FRC, the Commission has been conducting verification exercises on the utilisation of debts contracted by governments and public institutions.
In the course of these verification exercises, he said over the years, the Commission has reviewed documentation of a good number of loans and the utilisation of such loans made by banks to subnational governments and their institutions.
The Section of 45(1) of the FRC Act states that “all banks and financial institutions shall request and obtain proof of compliance with the provisions of this part before lending to any government in the federation”.
Furthermore, in Section 45(2), the Act stated, “lending by and financial institutions in contravention of this part shall be unlawful”.
Muruako said though these provisions are stated in plain, simple, easy-to-understand language, the FRC’s observation was that applications for loans by the subnational governments, in particular, were often received, processed, approved and disbursed by banks without full recourse to the provision of Section 41, 44 and 45 of the FRC Act.
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He noted that only one out of a recent sample of 13 loans to the governments across the country, had an associated “cost-benefit-analysis detailing the economic and social benefits of the purpose to which the intended borrowing is to be applied”, in accordance with Section 44(1) of the FRA.
The Chairman called on banks and financial institutions in the country to support the bold macroeconomic reform initiatives of the administration of Bola Ahmed Tinubu hy being intentional in helping to reduce the risk of macroeconomic instability through ensuring that their lending practices consistently comply with the provisions of the the FRA.
In his goodwill message, Benjamin Okezie Kalu, deputy speaker, House of Representatives noted that State governments borrowed N46.17 billion between January and June 2023, to pay salaries.
Represented by Abubakar Hassan Nalaraba, chairman, House of Reps Committee on Aids, Loans and Debt Management, he said State governments borrowed for consumption, which he said worsens inflation.
On his part, Nalaraba said that aids and grants that come into the country cannot be traced and accounted for, adding that the legislators are determined to make laws that will compel banks to disclose these grants.
“There are over billions of dollars coming into the country as grants but we cannot pin-point where those grants are going,” he said.
Present at the dialogue included the representative of the House of Representatives, Nigerian governors forum, Senate Committee on loan, Nigerian Financial Intelligence Unit (NFIU), Nigeria Deposit Insurance Corporation (NDIC) and representatives from banks.
Moderating, Ogho Okiti, Chief Executive Officer, ThinkBusiness Africa, charged the stakeholders with what happens next and wayforward.
