FG prohibits banks from granting unauthorized loans to governors, others
As part of the measures put in place by the government to check the rising public debt, all money lending banks in the country have been warned to desist from granting any form of loan to state governors without express authorization from the Federal Ministry of Finance; as such act is punishable by the law.
Making this disclosure yesterday in Lagos at the inaugural Annual Public Lecture of THE CITIZEN, the Director General, Debt Management Office, Dr. Abraham Nwankwo, said that all external and domestic borrowing by all levels of government should be in line with the Fiscal Responsibility Act 2007, which provided the legal framework for the Ministry of Finance to ensure that all levels of public debt were consistent with sustainable national levels.
He stated that non-compliance with the provisions of the Act was an offence which would attract various forms and degrees of prohibitions including a ban from borrowing from domestic and external sources.
In his keynote address on 'Paris Club Exit and New Debt: A Growth Imperative or an Avoidable Dilemma?, Dr. Abraham stated all banks and financial institutions 'must request and obtain proof of compliance with the provisions of the act before lending to any government in the federation'. He therefore described as 'unlawful any lending activities by the banks and financial institutions which were in contravention of the Fiscal Act.
The Director General stated that 'in a modern economy, the government is responsible for co-ordinating and regulating the activities of all economic agents to ensure macroeconomic stability'. He therefore called on all Nigerians to be vigilant and report to the Ministry of Finance, the Central Bank of Nigeria or the Debt Management Offices in states, local governments or agencies that have borrowed or are in the process of borrowing funds from financial institutions without approval from relevant authorities.
On the relevance of national debts, Dr. Abraham said that 'governments may sometimes borrow not necessarily to augment its financing resources but to influence the direction, speed and size of economic activity', adding that 'the size and quality of public debt could form a basis for assessing the health of the economy'.
Nwankwo stressed that it was necessary to highlight the impact of Nigeria's public debt management operations because the focus had been on the amount borrowed rather than the benefits.
He said the sovereign debt issuance was part of deliberate efforts by the Federal Government to resuscitate the bond market, which had been neglected by successive military governments..
Explaining why a vibrant bond market was important, the DMO DG said, 'Even if the Federal Government didn't need to borrow money to fund projects, there was the need for it to provide debt instruments for the private sector.'
Nwankwo said efforts in that regard made it possible for 20 private companies to raise N200bn from the domestic bond market between 2005 and 2012 to fund the development of the real sector.
Another benefit of the efforts, according to him, is the recognition and endorsement of the FGN Bond market by reputable international financial institutions such as JP Morgan and Barclays Capital.
'In March 2013, the International Financial Corporation issued naira denominated instrument worth $76m in the domestic bond market,' he added.
Nwankwo, who said domestic debt rose prior to the establishment of the DMO because there was no provision for long-term debt, assured Nigerians that the concern of the government was the same as theirs when on the issue of debt.
This, he said, was because the growth of debt was not the objective; rather, it was to boost the economy.
As a result of this, he said that the government had been deliberately reducing its debt for the last four years.
The DMO boss explained that the reason for the rise in borrowing was due to recession, increase in personnel cost as well as special interventions by the government such as the N200bn Commercial Agriculture Credit Scheme, among others.
Stressing that the Federal Government was keen to avoid a debt trap, he said it was ensuring that while funding deficit, it was also solving structural problems in the country by developing instruments for long-term borrowing.
In his earlier remarks, the publisher of THE CITIZEN, Mr. Malachy Agbo said that the lecture was necessary to provide a platform for all stakeholders to expand the public knowledge on public debt management and address grey areas that bring about distrust between the government and the citizens as far as borrowing is concerned.
'THE CITIZEN Annual Public Lecture is undertaken not only to broaden and deepen public discourse on burning national issues affecting the citizenry but also to bring about ideas and create a good platform for solutions to our shared problems.