Lagos, Nigeria – 08 Oct. 2023
Lending to States: SGF Charges Banks to Follow the Fiscal Responsibility Act
– As FRC urges banks to comply with Section 45 of Fiscal Responsibility Act in their lending practices
The Secretary to the Government of the Federation (SGF) Senator George Akume has charged banks to follow the provisions of the Fiscal Responsibility Act in their lending to Governments in the Federation.
The SGF, represented by Dr David Eze, a staff of the Office of the Secretary to the Government of the Federation (OSGF), made the charge in a Keynote Address delivered on his behalf at a Stakeholders Dialogue on Implementing Section 45 of the Fiscal Responsibility Act (FRA) hosted in Lagos on 7th October by the Fiscal Responsibility Commission (FRC).
The SGF who harped on the need for subnational governments to borrow through the right channels and for the right reasons, noted that governments across the world grow faster and better through good and strong institutions, rules and regulations, hence the implementation of the FRA 2007 is worthwhile.
Senator Akume insisted that a disciplined borrowing process helped to promote fiscal sustainability and macroeconomic stability. He lauded FRC for organizing the meeting at a time when the Nigerian economy is faced with key challenges.
“The dialogue is justified, as the government is working to get things right from the beginning to avoid mistakes that have dragged the nation into huge domestic and foreign debt.
“Accordingly, this administration is ensuring that the nation follows laid down rules and regulations, in order to ensure prudence, transparency and accountability in the management of public funds and also to depart from such practices that have left so much debt for successive government,” he said.
Also speaking at the event, the Deputy Speaker (DS) of the House of Representatives, Honourable Benjamin Kalu said the nation needs to be self-sufficient and independent instead of relying on loans. The DS who was represented by Mr. Nalaraba Abubakar, Chairman, House Committee on Loans and Debt Management, affirmed that compliance with provisions of Section 45 of the FRA remains crucial to the banks and other financial institutions before lending to any government of the federation.
In his Welcome Address, Mr Victor Muruako, the Executive Chairman of the Fiscal Responsibility Commission (FRC), called on all Nigerian banks to adhere to the provisions of the Fiscal Responsibility Act (FRA) 2007, particularly its Section 45, in their lending practices to governments in the Federation and their agencies.
The Fiscal Responsibility Act 2007 (FRA), which is Nigeria’s foremost legal framework for the promotion, monitoring and enforcement of fiscal discipline, stipulates in Section 45(2), that lending by banks to governments or their agencies in contravention of the provisions of the Act shall be unlawful. PART X of the act provides guidelines for borrowing by government agencies and public institutions, including the requirement for obtaining the necessary approvals and proof of compliance to ensure the sustainability of loans.
Recognizing the critical role that loans play in driving socio-economic development, the FRC brought banks together with regulators, and policy makers in the Stakeholder Dialogue to highlight the provisions of the FRA on responsible lending. Discussions focused on measures to enhance compliance to improve the nation’s debt management practices.
“We are committed to good corporate governance, fiscal stability and the pursuit of economic development to improve the lives of citizens while improving our nation’s viability. We, therefore, enjoin all stakeholders to support the bold macroeconomic reform initiatives of the administration of His Excellency Bola Ahmed Tinubu by ensuring more fiscal discipline in line with the provisions of the Fiscal Responsibility Act 2007 (FRA).”
The Chairman emphasized that the provisions of the FRA serve to keep the lender, borrower, regulator, evaluator, assessor, and indeed the beneficiary of public sector loans on the same page.
In their presentations, the speakers highlighted implications of noncompliance with the provisions of the Fiscal Responsibility Act 2007 and recommended best practices for improving the fiscal environment.
Professor Uche Uwaleke said, “Government borrowing at all levels has been on the rise over the years, causing strain on government balance sheet and stifling development. The rate of accumulation of domestic debt is alarming and needs to be managed with a lot more fiscal discipline. At over N87 trillion by the end of June 2023, we are at a point where our public debt is unsustainable, requiring significant financial intervention just to avoid going into default. Unsustainable subnational government finances expose the federal government to fiscal risks including the pressure to provide financial assistance.”
Responding on behalf of the banks, Mr. Greg Jobome, Executive Director, Risk Management Division, Access Bank said that they will continue to work together with all stakeholders to create an environment that fosters responsible lending practices, transparency, and accountability.
The FRC Stakeholder Dialogue brought together a diverse group of participants including banking Institutions, government representatives, economists, academics and experts in fiscal governance. Stakeholders agreed on the need for the Fiscal Responsibility Commission to continue the drive towards adopting an implementation guideline for public loans aligned with the provisions of the FRA 2007.
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Media Contact:
Bede Anyanwu
Head of Strategic Communications Fiscal Responsibility Commission
Anyanwu.bede@frc.gov.ng; anyanwubede33@gmail.com