How banks lure state governments into debt-trap —FRC

The Fiscal Responsibility Commission (FRC) has expressed dismay at how banks in the country lure many state governments into debt traps by offering mouthwatering loans.

The council consequently issued critical guidelines that state governments must satisfy before being eligible to borrow from any bank or the capital market in the country.

Barrister Charles Abana, the Head, Directorate of Legal, Investigation and Enforcement at the Fiscal Responsibility Commission made this known at the Growth Initiative for Fiscal Transparency (GIFT) Parley with Civil Society Partners, in Abuja, on Monday.

“We had a meeting in Lagos with banks to study debt patterns, how do banks give out loans and how do they recover it? At the meeting, it was revealed that as soon as state governors constitute their cabinets bank officials swoop on them with mouth-watering offers to lure them into borrowing from the banks”.

The commission disclosed that a template must be followed before loans can be accessed.

“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 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).

“If we don’t put some checks on them, and make it not too easy for them to borrow, I don’t think we will come out of this debt situation.

Speaking on the 2024-2026 Medium Term Expenditure Framework (MTEF), Mr Abana noted that “the Country’s fiscal deficit (including project tied loans) as a percentage of Gross Domestic Product GDP will keep increasing over the medium term from 3.83 per cent, 3.89 per cent and 3.92 per cent respectively of the projected GDP.

READ ALSO:Naira redesign policy pushes banks’ earnings from cashless transactions to N279bn in 9 months

According to him, “Borrowing will increase over the three years while foreign borrowing will increase in the first two years of the medium term.

“The proposed new borrowings are in the sums of N7.808trillion, N8.539trillion and N10.072trillion respectively for the years 2024, 2025 and 2026.”

The FRC official recommended that there should be a reduction of overhead capital and the cost of governance to make more resources available for developmental capital.

He added that each of the capital expenditures should have a proper cost-benefit analysis open to the public.

In addition, it recommended that more public assets be slated for privatisation to increase resources expected from the privatisation exercise while reducing recurrent expenditure.

Join the conversation

Opinions

Support Ripples Nigeria, hold up solutions journalism

Balanced, fearless journalism driven by data comes at huge financial costs.

As a media platform, we hold leadership accountable and will not trade the right to press freedom and free speech for a piece of cake.

If you like what we do, and are ready to uphold solutions journalism, kindly donate to the Ripples Nigeria cause.

Your support would help to ensure that citizens and institutions continue to have free access to credible and reliable information for societal development.

Donate Now