NewsFed Govt to clamp down on banks breaching lending rules

September 9, 2024by PG0

The federal government has vowed to take steps to address the issue of banks lending money to state governments without adhering to the provisions of the Fiscal Responsibility Act (FRA).

Additionally, the government has directed the Fiscal Responsibility Commission (FRC) to provide increased technical support to local government councils in line with recent developments granting these councils financial autonomy.

These steps are in response to two key events. First, the Supreme Court’s recent ruling that granted financial autonomy to local governments, ensuring they manage their finances independently from state governments. Second, the federal government is determined to avoid any future embarrassment following the threat by a Chinese company to seize national assets after a state government failed to fulfill its financial obligations in a transaction.

Speaking at the National Summit of Fiscal Responsibility in Abuja, Chairman, Fiscal Responsibility Commission (FRC), Barrister Victor Muruako,  expressed deep concern over the role banks play in violating the provisions of the Fiscal Responsibility Act. He noted that banks have been aiding state governments in circumventing the law, particularly with respect to borrowing.

Muruako cited Section 44.1 of the Fiscal Responsibility Act, which mandates that any government or its agencies intending to borrow funds must present a detailed cost-benefit analysis of the proposed borrowing. This analysis should outline the economic and social benefits of the borrowing project. Furthermore, banks and financial institutions are required to ensure that governments comply with these provisions before loans are approved.

“We are witnessing a troubling decline in accountability,” Muruako remarked. “In one instance, a state government’s secretary simply signed a declaration claiming compliance with the Act, which then allowed the government to proceed with borrowing. This is deeply alarming.”

He went on to criticize banks for accepting such documents, noting that financial institutions have made it convenient to approve loans without thoroughly verifying compliance with the law.

“We have reached out to banks and carried out extensive sensitisation efforts, but it is clear that more needs to be done. We cannot afford to remain silent any longer. This is a matter of national urgency,” Muruako said.

The FRC Chairman also revealed instances where state fiscal responsibility commissions exceeded their authority by approving loans intended for federal purposes. “This is not the intent of the Act, nor is it in line with the Constitution,” Muruako emphasized, adding that such practices undermine the fiscal responsibility framework.

Muruako called for greater accountability from all stakeholders involved in government borrowing, stating that “if we are serious about fiscal discipline, we need to respect the law or repeal it if it’s no longer desired.”

Also addressing the summit, Senator George Akume, the Secretary to the Government of the Federation, represented by former Permanent Secretary Mr. Olusegun Adekunle, issued a directive to the Fiscal Responsibility Commission to extend its technical support to local governments. This is intended to facilitate their adoption of fiscal responsibility measures in line with federal policies and ensure a smooth transition to financial autonomy.

“The Fiscal Responsibility Commission must provide increased technical support to local governments,” Akume said. “This will help ensure that these councils fully adopt fiscal responsibility practices, policies, and byelaws that align with federal standards.”

Senator Akume also reiterated the importance of the Supreme Court’s ruling on the financial autonomy of local governments, describing it as a landmark decision that will bring governance closer to the people. He stressed that fiscal rules must be adhered to across all tiers of government, noting that “subnational governments must improve their compliance with the Fiscal Responsibility Act, especially concerning borrowing.”

Akume further emphasized that sustained efforts and commitment are necessary to achieve positive fiscal change. “Setting clear fiscal rules and adhering to them creates a framework for evaluating and improving our fiscal practices. Coordinating these rules across the federation is crucial for maintaining fiscal cohesion.”

The SGF added that “It is important to adhere to the provisions of the Fiscal Responsibility Act, requiring both the effort of the Fiscal Responsibility Commission and the Fiscal Responsibility Committee to satisfy and monitor compliance with the provisions of the Act.

“Also I would like to emphasize the importance of the Supreme Court’s judgment on financial autonomy by local governments.”

The National Summit of Fiscal Responsibility brought together key stakeholders from various government agencies, financial institutions, and local government councils to discuss strategies for improving compliance with the Fiscal Responsibility Act and promoting transparency in government borrowing.

As the Federal Government moves to enforce stricter lending regulations and enhance local government autonomy, the spotlight is now on banks and financial institutions to play their part in ensuring adherence to the law. The collaboration between the Fiscal Responsibility Commission, local governments, and financial institutions is expected to drive more disciplined borrowing practices and foster sustainable fiscal governance across Nigeria.

https://thenationonlineng.net/fed-govt-to-clamp-down-on-banks-breaching-lending-rules/

 

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