The Fiscal Responsibility Commission (FRC) has issued a strong warning against the misuse of borrowing proceeds by various levels of government, calling for strict compliance with the Fiscal Responsibility Act. This caution was delivered by FRC Executive Chairman, Victor Muruako, during the National Summit of Fiscal Responsibility Agencies in Nigeria, held on Thursday at the NAF Conference Center, Abuja.
Muruako emphasized that borrowing proceeds must be used solely for long-term capital expenditures, as stipulated 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, expressing concern over frequent violations of this provision.
The FRC Chairman particularly called out subnational governments for their inadequate adherence to the borrowing conditions outlined in the Act. He highlighted the need for fiscal discipline at all levels to ensure that Nigeria’s national debt remains manageable.
“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 said.
He also raised concerns about fiscal coordination, especially in debt management and procurement practices, which directly impact the country’s debt profile. Muruako referenced a recent case involving a failed partnership between a Chinese firm and a subnational government, pointing out the potential risks posed by such deals to national economic stability.
Muruako highlighted the legal requirement under Section 44(1) of the Fiscal Responsibility Act, which mandates governments and their agencies to present a clear cost-benefit analysis when seeking to borrow. He noted that many governments have failed to comply with this requirement, undermining the purpose of borrowing for development purposes.
“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,” he said.
Muruako also criticized state governments and financial institutions that circumvented the Act by providing false declarations of compliance, stating that such actions were an “avoidable usurpation” of the Commission’s powers.
Additionally, Muruako warned of the fiscal risks associated with Public-Private Partnerships (PPPs), noting that while PPPs are not classified as public borrowing, they can create contingent liabilities that may evolve into public debt.
The summit, organized with the support of the Rule of Law and Anti-Corruption Programme (RoLAC), the European Union, and the International Institute for Democracy and Electoral Assistance, aimed to promote better fiscal responsibility across all tiers of government.
Muruako expressed optimism that the summit would foster improved fiscal discipline, urging state governments to align their borrowing practices with the Act’s provisions. “Let us work together to build a nation where public funds are managed efficiently and effectively for the benefit of all citizens,” he concluded.
