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The Fiscal Responsibility Commission (FRC) has issued a strong warning against the misapplication of funds obtained through borrowing, stressing the need for greater fiscal discipline and strict adherence to the Fiscal Responsibility Act (FRA). This warning was delivered by the FRC’s Executive Chairman, Victor Muruako, during his opening address at the National Summit of Fiscal Responsibility Agencies, held in Abuja on Thursday.
Muruako emphasized that all borrowing proceeds must be allocated exclusively 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, pointing to frequent violations of this requirement by various levels of government.
He expressed concern over the consistent disregard for the borrowing conditions set forth in the FRA, particularly by state governments. “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 stated.
The FRC chairman also highlighted challenges in fiscal coordination, especially in areas related to debt management and procurement practices, which have significant implications for Nigeria’s overall debt burden. He referenced a recent failed business venture involving a Chinese firm and a subnational government, underscoring the potential risks that subnational debt poses to national economic stability.
Muruako explained, “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. This demonstrates the need for proper fiscal coordination between all tiers of government.”
Additionally, Muruako raised concerns about the lack of transparency in borrowing practices, particularly the failure of governments to provide proper documentation and conduct cost-benefit analyses, as required under Section 44(1) of the FRA. This section mandates that any government or its agencies seeking to borrow must specify the intended purpose and present a detailed cost-benefit analysis outlining the economic and social advantages of the loan. “This requirement is often ignored, and it shouldn’t be so,” Muruako lamented.
He further criticized instances where some state governments and financial institutions have falsely declared compliance with the FRA. “We have seen situations where a state’s Fiscal Responsibility Commission overreaches itself by declaring that a loan application from its state government has met the requirements of the FRA. Such actions are unacceptable usurpations of the powers and responsibilities of the FRC,” he stated.
Muruako urged state governments to align their borrowing practices with the provisions of the FRA, calling for improved professionalism in managing public-private partnerships (PPPs). He warned that while PPPs are not considered public borrowings, they carry fiscal risks and could eventually become contingent liabilities that contribute to public debt.
The summit, held in partnership with the Rule of Law and Anti-Corruption Programme (Phase II) and supported by the European Union and the International Institute for Democracy and Electoral Assistance, provided a platform to promote fiscal responsibility and coordination among different tiers of government.
Expressing optimism about the outcomes of the event, Muruako concluded, “Let us work together to build a nation where public funds are managed efficiently and effectively for the benefit of all citizens.”
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