BRANDPOWER reports that the Fiscal Responsibility Act 2007 (FRA) is Nigeria’s foremost legal framework for promoting, monitoring and enforcing fiscal discipline in the federation.
The Fiscal Responsibility Commission (FRC) on Saturday highlighted the risks associated with banks lending in a manner that contravenes Section 45 of its Fiscal Responsibility Act and warned against its consequences.
Its Executive Chairman, Mr Victor Muruako, who spoke at a one-day stakeholders dialogue in Lagos, said such manner could also have severe consequences for banks and the Nigerian economy as a whole.
The dialogue was on implementing Section 45 of the Fiscal Responsibility Act.
BRANDPOWER reports that the commission began discussions with banks and financial institutions in the country to ensure that their lending practices consistently comply with provisions of the Fiscal Responsibility Act (FRA).
Muruako emphasised that although borrowing by the government and public institutions is a tool for development, lending by banks and financial institutions in violation of the provision is unlawful.
Despite the simplicity and clarity of the Act’s language, he pointed out that banks often approve and disburse loans to subnational governments without fully adhering to the provisions of the FRA.
Muruako said: “Not once in the commission’s verification exercises, has it confirmed that a Proof of Compliance With Provision of the FRA was specifically requested for and obtained by a bank or financial institution before lending to any government.
“Also, only one, out of a recent sample of 13 loans to governments across the country, had an associated ‘Cost-Benefit Analysis’, detailing the economic and social benefits of the purpose to which the intended borrowing is to be applied.
The FRC chairman said there lawsuits in courts across the country, challenging the propriety of some bank loans to governments and public institutions, based on provisions of the FRA 2007.
Muruako said: “The unsavory effect of this non-compliance, may spread well beyond the individual banks to the inside macroeconomic space.
“Since the commission has responsibility toward macroeconomic stability, we thought it necessary to hold this stakeholders dialogue to get the perspectives of banks and also stem the tide before it’s too late.
“I urge the banks and other financial institutions to support the bold macroeconomic reform initiative of President Bola Tinubu’s administration.
“By being intentional in helping to reduce the risk of macroeconomic instability through ensuring that their lending practice consistently comply with provisions of the FRA.”
Muruako appreciated the leadership of Access bank for their support in organising the event and stakeholders in the financial industry for their cooperation with FRA.
In his remark, Mr Felix Obiamalu, a lawyer, advised the FRC to work toward engaging the Nigeria Governors’ Forum (NGF) and carry them along to ease the implementation of the provision.
Obiamalu, also Associate Director, Legal and Sanctions, Nigeria Financial Intelligence Unit,
stated that the FRA should also be empowered to enforce compliance to the FRA.
This, he noted, could be done by enabling laws to sanction and penalise defaulters of the Act.
In his presentation, Prof. Uche Uwaleke of the Nasarawa State University, Keffi, also harped on the need to curb borrowings from government at all levels.
He said this had become more for consumption, rather than for capital projects.
Uwaleke noted that government borrowings over the years had been on the rise, as the country currently has over N87 trillion public debt.
According to him, this is causing strain on government balance sheet and stifling the nation’s development.