Mr Elias Mbam, the Chairman, Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC), has cautioned state governments against amassing external and domestic debts.
Mbam made the call in an interview with the News Agency of Nigeria (NAN) on Monday in Abuja.
He said the commission had recommended that states should limit their total exposure to external and domestic borrowing to not more than 20 per cent of their monthly allocations from the Federation account.
"Part of our responsibility is to advice the states and local governments on fiscal efficiency. If we observe that they are over-exposing themselves we advise them accordingly.
"But on a general advice, no states should be allowed to borrow beyond 20 per cent of their entitlement from the Federation Account because they will not be able to discharge their responsibility if they go beyond that.
"So, until it is properly checked and they are advised there may be the tendency of a state even without realising it that the exposure has gone beyond the limit he can still discharge his responsibility."
Mbam said his commission was working with the Debt Management Office (DMO) to ascertain the actual indebtedness of states.
He said while the Ministry of Finance through the DMO had figures on the external borrowing of states for which the Federal Government stood as surety, the same could not be said of domestic debts owed by states.
"The ones the Ministry of Finance will know are the ones they have the surety. All external borrowing is done by the Federal Government that borrows before lending to the state, so they will be able to capture that.
"But if a state negotiates with a commercial banks, it may not be public they may not be able to capture it.
"So we have requested the states to furnish us with their debt profile so that we will able to know actually their exposure, and we are working with DMO on that direction."
He also stressed the need for states to establish Debt Management Offices to ensure more transparency and accountability in government debt management policy.
"States and local governments take about 50 per cent of the Federation account, so if this 50 per cent is not properly managed even if the Federal allocation which is about the same 50 per cent is properly managed, we still have a problem.
"So it should be a concern that is why we emphasise that they should manage their resources properly, so that Nigeria would derive the best from available resources.
"If all the money they get is on servicing debts then certainly there will be problem, even more unemployment as those who are working cannot be paid and you cannot provide basic services."
According to figures on the DMO website, state governments' external debt stock stands at $2.165 billion as at Dec. 31, 2011, while that of the federal government's has hit $3.50 billion. NAN