FRC Cautions Against Improper Use of Loans.
The Fiscal Responsibility Commission has issued a strong warning regarding the improper use of borrowed funds, highlighting the necessity for enhanced fiscal discipline and compliance with the Fiscal Responsibility Act. This message was conveyed by Victor Muruako, the Executive Chairman of the FRC, during his opening remarks at the National Summit of Fiscal Responsibility Agencies in Nigeria, which took place on Thursday at the NAF Conference Center in Abuja.
Muruako underscored the critical need for borrowed funds to be allocated exclusively for long-term capital projects, as specified in Section 44(2)(b) of the Fiscal Responsibility Act. He reiterated, “The proceeds of public sector borrowing shall solely be applied towards long-term capital expenditures,” pointing out the frequent breaches of this rule by various government levels.
The FRC chairman expressed his concerns over the insufficient adherence to the stipulations outlined in the Fiscal Responsibility Act, particularly by subnational governments. He remarked, “We do not see adequate compliance by subnational governments with the borrowing conditions set forth in the Fiscal Responsibility Act.” He emphasized that it is essential for state governments and lending institutions to operate within these guidelines to maintain fiscal discipline and keep national debt at manageable levels.
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Muruako also addressed issues related to poor fiscal coordination, especially in terms of debt management and procurement practices, which have significant implications for Nigeria’s overall debt situation. He highlighted the need for improved collaboration among different governmental levels to ensure that borrowing is conducted responsibly.
In his remarks, he referenced a recent incident involving a failed partnership between a Chinese company and a subnational government, which illustrated the lessons learned about the connection between subnational debt and national economic stability. He stated, “The first lesson in fiscal coordination is that a state government’s judgment debts are part of that state’s overall liabilities and, by extension, affect national finances.”
Muruako’s statements reflect a growing concern over the fiscal health of various government levels in Nigeria. He called for a renewed commitment to fiscal responsibility, urging all stakeholders to prioritize the proper allocation and management of public funds. This includes ensuring that borrowing is done transparently and for purposes that will benefit the public in the long run.
The FRC chairman also pointed out that the mismanagement of borrowing proceeds could lead to detrimental effects on the country’s economic stability. He urged state governments to align their borrowing practices with national fiscal policies to avoid creating additional financial burdens.
Furthermore, Muruako emphasized the importance of accountability in public spending. He encouraged greater scrutiny of how borrowed funds are utilized, advocating for mechanisms that would ensure compliance with the Fiscal Responsibility Act. This, he believes, is crucial for maintaining trust between the government and its citizens.
In conclusion, the FRC’s warnings serve as a reminder of the critical importance of fiscal discipline in governance. As Nigeria navigates its economic challenges, adherence to the principles outlined in the Fiscal Responsibility Act will be essential for sustainable growth and development.
