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Cashing in on Fiscal Responsibility: FRC Warns Against Misapplication of Borrowing Proceeds
Cashing in on Fiscal Responsibility: FRC Warns Against Misapplication of Borrowing Proceeds....KINDLY READ THE FULL STORY HERE▶
The Fiscal Responsibility Commission (FRC) has issued a stern warning regarding the misapplication of borrowing proceeds, highlighting the urgent need for greater fiscal discipline among government entities. This crucial message was conveyed by Victor Muruako, the Executive Chairman of the FRC, during the National Summit of Fiscal Responsibility Agencies in Nigeria, held on Thursday at the NAF Conference Center in Abuja.
Muruako underscored the importance of utilizing borrowing proceeds solely for long-term capital expenditures, as stipulated in Section 44(2)(b) of the Fiscal Responsibility Act. He stated, “The proceeds of public sector borrowing shall solely be applied towards long-term capital expenditures.” This directive aims to prevent the frequent violations observed across various levels of government, which undermine fiscal integrity.
The FRC chairman expressed particular concern over the lack of adherence to the borrowing conditions outlined in the Fiscal Responsibility Act, especially by subnational governments. He remarked, “We do not see sufficient adherence by subnational governments to the conditions for borrowing.” Muruako emphasized that both state governments and lending institutions must operate within these guidelines to maintain fiscal discipline and ensure that national debt remains manageable.
In his address, Muruako also addressed issues of inadequate fiscal coordination, particularly in the areas of debt management and procurement practices, which significantly affect Nigeria’s overall debt profile. He cited a recent failed partnership between a Chinese firm and a subnational government, highlighting the critical lessons regarding the link between subnational debt and national economic stability. “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.
Another pressing concern raised by Muruako was the lack of proper documentation and cost-benefit analysis by governments seeking to borrow funds. He pointed out that Section 44(1) of the Fiscal Responsibility Act mandates that any government or its agencies wishing to borrow must specify the purpose of the borrowing and present a detailed cost-benefit analysis. “This is generally observed in the breach. And it shouldn’t be so,” he lamented.
Muruako criticized certain state governments and financial institutions for circumventing the provisions of the Fiscal Responsibility Act through false declarations of compliance. He stated, “We have seen unacceptable variances, such as a State’s Fiscal Responsibility Commission overreaching itself to declare a loan application by its state government as fulfilling the requirements of the Fiscal Responsibility Act.” Such actions, he noted, are avoidable usurpations of the powers and responsibilities of the FRC.
Muruako urged state governments to align their borrowing practices with the conditions set out in the Fiscal Responsibility Act. He also emphasized the importance of professionalism in managing public-private partnerships (PPPs), warning that these can carry fiscal risks. “Though PPPs are not public borrowings per se, they can morph into contingent liabilities and public debts,” he cautioned.
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