The National Natural Resources and Fiscal Commission (NNRFC) has recommended internal borrowing ceilings for all three tiers of government for the upcoming fiscal year, 2025/26.

It has suggested the federal government raise internal debt equivalent up to 5% of the estimated Gross Domestic Product (GDP). For provincial and local governments, the domestic borrowing cap is set at 12% of their total revenues, including fiscal transfers.

“The governments may raise internal debt after assessing macroeconomic conditions, revenue and expenditure estimates, and market feasibility,” the NNRFC said in its recommendation.

The commission emphasized that borrowing should be strictly limited to development projects that deliver long-term economic returns—such as those promoting job creation and capital formation. It strongly warned against using borrowed funds for recurrent or administrative expenses.

The NNRFC further urged that loans should only be secured for national pride projects, transformative initiatives, or those designated as top priorities within the medium-term expenditure framework, aligning with national development policies and plans.

Only projects that demonstrate sound economic viability—validated through cost-benefit analysis, including favorable Internal Rate of Return (IRR) or Net Present Value (NPV)—should qualify for such financing.

In a shift from past practices, the commission clarified that provincial and local governments may only raise loans after fulfilling all legal requirements. Previously, provinces often listed internal borrowing as a funding source in deficit budgets without seeking prior approval from the federal government.

(With inputs from RSS)