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FRC Issues Caution on Loan Misuse: Safeguarding Financial Integrity

886EDC6C 4154 44E8 8936 041A9C93F8AD FRC Issues Caution on Loan Misuse: Safeguarding Financial Integrity
FRC Chairman, Victor Muruako

The Fiscal Responsibility Commission has issued a stern warning against the misapplication of borrowing proceeds, emphasising the need for greater fiscal discipline and adherence to the Fiscal Responsibility Act.

This caution was delivered by Executive Chairman of the FRC, Victor Muruako, during his welcome address at the National Summit of Fiscal Responsibility Agencies in Nigeria, held on Thursday, at the NAF Conference Center, Abuja.

Muruako stressed the importance of ensuring that borrowing proceeds are used solely for long-term capital expenditures, as outlined in Section 44(2)(b) of the Fiscal Responsibility Act.

“The proceeds of public sector borrowing shall solely be applied towards long-term capital expenditures,” he reiterated, highlighting frequent violations of this provision by various levels of government.

The FRC chairman expressed concern over the lack of adherence to the conditions stipulated in the Fiscal Responsibility Act, particularly by subnational governments.

He stated, “We do not see sufficient adherence by subnational governments to the conditions for borrowing as stipulated in the Fiscal Responsibility Act. It is incumbent upon state governments and lending institutions to operate within these parameters, ensuring that fiscal discipline is maintained and that our national debt remains within manageable limits.”

Muruako also addressed issues related to inadequate fiscal coordination, especially in debt management and procurement practices, which have implications for Nigeria’s overall debt profile.

He referenced a recent case involving a failed business relationship between a Chinese firm and a subnational government, underscoring the lessons learned regarding the nexus between subnational debt and national economic stability.

“The first lesson in fiscal coordination is that a state government’s judgment debts constitute part of the debts of that state government and, by extension, part of the total stock of national debt,” he explained.

The FRC chairman also raised concerns about the lack of proper documentation and cost-benefit analysis by governments seeking to borrow.

“Section 44(1) of the FRA requires any Government in the Federation or its agencies and corporations desirous of borrowing to ‘specify the purpose for which the borrowing is intended and present a cost-benefit analysis, detailing the economic and social benefits of the purpose to which the intended borrowing is to be applied.’ This is generally observed in the breach. And it shouldn’t be so,” Muruako lamented.

He further criticised the actions of some state governments and financial institutions that have circumvented the provisions of the Fiscal Responsibility Act by providing false declarations of compliance.

“We have also seen equally unacceptable variances of this, one of them being a situation where the State’s Fiscal Responsibility Commission overreaches itself to boldly declare a loan application by its state government as having fulfilled the requirements of the provisions of the Fiscal Responsibility Act,” he said, adding that such actions are “avoidable usurpations of the powers and responsibilities of the Fiscal Responsibility Commission.”

Muruako called on state governments to align their borrowing practices with the conditions outlined in the Fiscal Responsibility Act and emphasised the need for greater professionalism in managing public-private partnerships.

He warned, “PPPs carry fiscal risks. Though PPPs are not public borrowings per se, they can morph into contingent liabilities and public debts.”

The summit, organised in collaboration with the Rule of Law and Anti-Corruption Programme, Phase II, and supported by the European Union and the International Institute for Democracy and Electoral Assistance, served as a platform to foster fiscal responsibility and coordination across various tiers of government.

Muruako expressed optimism that the event would lead to improved fiscal discipline, stating, “Let us work together to build a nation where public funds are managed efficiently and effectively for the benefit of all citizens.”

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