By Milcah Tanimu

The Federal Government has initiated steps to regulate the indiscriminate borrowing by state governments from banks and the capital market. The Fiscal Responsibility Commission (FRC) has issued guidelines outlining the conditions that state governments must meet before borrowing from any bank in the country.

Barrister Charles Abana, the Head of the Directorate of Legal, Investigation, and Enforcement at the Fiscal Responsibility Commission, revealed this during the Growth Initiative for Fiscal Transparency (GIFT) Parley with Civil Society Partners in Abuja. Abana expressed concern about the tendency of banks to lure state governments into securing loans without proper scrutiny.

He mentioned that the commission is providing a template to guide state governments, and they are working to ensure that the Central Bank of Nigeria (CBN) issues a comprehensive guideline to banks on the necessary requirements and compliance before lending to states. Abana emphasized the importance of putting checks on state borrowing to prevent an escalation of the debt situation.

Abana further discussed a meeting with banks in Lagos to study debt patterns and revealed that bank officials often approach state governments with attractive offers as soon as they constitute their cabinets, making it imperative to establish stricter guidelines.

Additionally, Abana touched on the 2024-2026 Medium Term Expenditure Framework (MTEF), stating that the country’s fiscal deficit as a percentage of GDP is projected to increase over the medium term. Borrowing is expected to rise over the next three years, with foreign borrowing increasing in the first two years of the medium term.