FG bars Nigerian banks from giving loans to state governments

The Federal Government has barred banks in the country from giving loans to state governments.

The decision was taken in line with the Fiscal Sustainability Plan, FSP, which has been agreed to by the Federal Government’s economic team and state governors, to ensure prudent management of sub-national resources.

This comes as the Central Bank of Nigeria, CBN, will today announce details of the much anticipated ‘flexible’ foreign exchange rate policy. President Muhammadu Buhari’s administration, Finance Ministry sources said, was disappointed at the manner some past and current governors took loans from banks and misapplied such funds, while mortgaging their states’ finances.

Currently, some states are left with too little to meet even their recurrent obligations, after deductions are made from their monthly federation account allocations.

Rather than bank loans, the Federal Government asked states to source funds from the capital market for their infrastructure development. It also insisted that funds sourced through bonds must not only be on bankable, measurable projects but must also be released in tranches.

It was gathered that the release of the proceeds of bond issuing will, henceforth, be on the basis of satisfactory utilization of earlier released proceeds. The FSP aims to improve accountability and transparency; increase public revenue; rationalise public expenditure; improve public financial management; and sustainable debt management.

 Specific action points of the reform include biometric capture of all civil servants; establishment of an efficiency unit in each state, implementation of continuous audit, improvement in internally generated revenue, IGR, and measures to achieve sustainable debt management. States that meet the above FSP conditions can access a new N50 billion facility to be guaranteed by the Federal Government.

Meanwhile, the CBN will today announce details of the much anticipated ‘flexible’ foreign exchange rate policy.

Acting Director, Corporate Communications Department, CBN, Mr. Issac Okoroafor, confirmed this to newsmen, yesterday. He said: “Yes, details of the policy will be announced tomorrow (today).”

The announcement is coming three weeks after the Monetary Policy Committee, MPC, of the CBN decided to introduce “greater flexibility in the management of the foreign exchange market. “The foreign exchange market framework, now ready, the MPC voted unanimously to adopt greater flexibility in exchange rate policy to restore the automatic adjustment properties of the exchange rate.

Consequently, all nine members voted to hold and introduce greater flexibility in managing the foreign exchange rate. “The bank would, however, retain a small window for funding critical transactions. Details of operation of the market would be released by the bank at an appropriate time,” the committee said at the end of its meeting on May 24, 2016. According to agency reports, sources at the CBN said an announcement by Governor Godwin Emefiele will be made in Abuja, having concluded consultations with various stakeholders on the policy.

 As part of the new policy, the CBN will allow market forces determine the exchange rate between the naira and other currencies but may retain a small intervention window to allow it intervene in some instances ‘critical’ to the nation’s economic growth and will apply foreign exchange at an adjustable rate between N230 and N250, depending on the rate in the market.

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