FG, States Contravene FRA Via High Interest Loans, Says FRC
The Federal Government and state governments have been violating the Fiscal Responsibility Act by borrowing high interest loans, the Fiscal Responsibility Commission has said.
In its 2017 Annual Report and Audited Accounts obtained by our correspondent on Monday, the Fiscal Responsibility Commission said that the governments were supposed to borrow only concessional loans with low interest rates.
The report stated, “The external debt stock was N5.79tn and it accounted for 26.64 per cent of the country’s total public debt. The domestic debt stock of the country (FG and states) amounted to N15.94tn, representing 73.36 per cent of the total public debt stock of the nation as of the end of 2017.
“Bilateral and multilateral loans are concessional with a low interest rate of less than three per cent and long amortisation period.
“Accordingly, the external debt is expected to form the bulk of the total public debt as expounded by FRA 2007.
“However, from the analysis, the external debt stock constituted 26.64 per cent of the total public debt of the nation as of the end of December 2017 while domestic loan stock that attracts double digits interest rates with short term amortisation accounted for 73.36 per cent of the total public debt stock as of the end of 2017.
“It can be concluded that the borrowing pattern that led to this proportion of external loan to domestic stock violates the provision of Section 41(1)(a) of FRA, 2007, which stipulates that loans should be at low interest and at a concessional interest rate.
“In order to reduce the overall debt burden of the country, it is recommended that the governments (Federal Government and states) repay most of the domestic loans while external loans are secured and obtained for capital and human development purposes.”
Section 41 (1) (a) of the Fiscal Responsibility Act said, “Government at all tiers shall only borrow for capital expenditure and human development, provided that such borrowing shall be on concessional terms with low-interest rate and with a reasonable long amortisation period subject to the approval by the legislative body where necessary.”
The FRC, in the report, said that as of the end of December 2017, the Federal Government’s total debt service was $5.29bn.
It said, “When compared to $4.38bn of the corresponding period of 2016, it showed an increase by $906.47m or 20.69 per cent. While in 2017, the total external debt service was $464.04m accounting for 8.77 per cent of the total public debt service.”
On the other hand, the domestic debt service for the same period amounted to $4.82bn or 91.23 per cent of the total public debt service.