By Babajide Komolafe
The Fiscal Responsibility Commission, FRC, has warned banks against contravening the Fiscal Responsibility Act, FRA, in their lending activities to state governments.
Chairman of the Commission, Victor Muruako, gave this warning in Lagos yesterday, stressing that banks should not make themselves willing tools of fiscal recklessness in the hands of state governments.
Speaking at a 2-day Fiscal Transparency and Accountability Sensitization, Muruako, said: “We wish to use this opportunity to discourage the bad habit of some sub-national governments to make loans their first and last consideration for meeting revenue shortfalls rather than considering ways of harvesting their dormant potentials for Internally Generated Revenue.
“As for banks and other financial institutions that make themselves willing tools of fiscal carelessness by granting loans to some sub-national governments without regard to due process, the Commission hereby reminds them that Section 45(2) in Part X of the Fiscal Responsibility Act 2007, which specifies conditions for borrowing by any government in the Federation or its agencies and corporations, reads as follows: “Lending by banks and financial institutions in contravention of this Part shall be unlawful.
“In line with the foregoing, the Commission hereby serves notice to defaulting banks and other financial institutions that the window of just using moral suasion is closing.
“Going forward, we intend to invoke the provisions of the law against this expressly defined unlawful act, wherever it rears its head. Where FRA, 2007 appears inadequate to compel, we shall aggressively invoke our collaborations with sister agencies such as the Independent Corrupt Practices Commission, ICPC and the Economic and Financial Crimes Commission, EFCC.”
Lamenting the lacklustre commitment of some states to domesticate the FRA, Muruako, said: “For us at the Fiscal Responsibility Commission, we had expected the “bailout loans” to elicit a sharp increase in the number of states that would enact fiscal responsibility laws and proceed to establish independent fiscal responsibility agencies that would monitor and enforce the laws.