The Secretary to the Government of the Federation (SGF), George Akume, has urged banks to comply with the provisions of the Fiscal Responsibility Act (FRA) when granting loans to governments and their agencies at different levels. He said that this would ensure that borrowing is done in a proper and sustainable manner.
The FRA as a legal framework for fiscal discipline
The SGF made this call in a keynote address at a Stakeholder Dialogue on Saturday in Lagos. The dialogue was aimed at promoting fiscal discipline and transparency in public finance management. He was represented by a staff in the SGF’s Office, Dr. David Eze.
He explained that the FRA 2007 is Nigeria’s foremost legal framework for the promotion, monitoring, and enforcement of fiscal discipline. It stipulates in Section 45 (2) that lending by banks to governments or their agencies in contravention of the provisions of the Act shall be unlawful.
He also said that Part X of the Act provides guidelines for borrowing by government agencies and public institutions, including the requirement for obtaining the necessary approvals and proof of compliance to ensure the sustainability of loans.
The role of loans in driving socio-economic development
The SGF acknowledged the critical role that loans play in driving socio-economic development, especially in the face of dwindling revenues and rising expenditure needs. He said that loans can be used to finance infrastructure projects, social services, and other public goods that can improve the lives of citizens.
However, he cautioned that loans must be borrowed and managed prudently, with due regard to the capacity to repay and the impact on future generations. He said that irresponsible borrowing can lead to debt distress, macroeconomic instability, and reduced fiscal space for development spending.
The need for collaboration among stakeholders
The SGF called on all stakeholders to support the bold macroeconomic reform initiatives of the administration of President Bola Ahmed Tinubu by ensuring more fiscal discipline in line with the provisions of the FRA. He said that this would enhance the nation’s viability and credibility in the eyes of domestic and international investors.
He also enjoined banks to collaborate with regulators, policy-makers, and government agencies in ensuring compliance with the FRA when lending to governments and their institutions. He said that this would help to improve debt management practices and accountability in the public sector.
He commended the Fiscal Responsibility Commission (FRC) for organizing the Stakeholder Dialogue and for its efforts in promoting fiscal responsibility and transparency. He assured that the SGF’s Office would continue to support the FRC in fulfilling its mandate.
The response of banks to the SGF’s call
The Executive Director in charge of Risk Management Division at Access Bank, Mr. Greg Jobome, spoke on behalf of the banks at the dialogue. He said that banks are committed to responsible lending practices and adhere to the provisions of the FRA when granting loans to governments and their agencies.
He said that banks are aware of the risks involved in lending to the public sector and take measures to mitigate them. He said that banks conduct due diligence, assess creditworthiness, monitor loan performance, and enforce repayment terms.
He also said that banks support government initiatives that aim to improve fiscal responsibility and transparency. He said that banks are willing to partner with regulators, policy-makers, and government agencies in enhancing compliance with the FRA and improving debt management practices.
