Thursday, July 13, 2017 3.00pm/Proshare WebTV
The Federal Executive Council of Nigeria, yesterday approved the release of N2.7trl to offset outstanding government debts and pensions in the country.
Minister for Finance Mrs Kemi Adeosun in a press briefing after the FEC meeting said this was in line with the resolve of the Federal Government to move the Nigerian economy forward.
According to her “We cannot get our economy moving at the pace we need to if we do not address the legacy issues we have inherited, which act as a significant drag on economic activity. The government must be a driver of growth, and enable private sector activity. It should not be the most significant obligor to many value creating businesses. At the same time, we have an obligation to our Federal Government employees to address these long-outstanding pension and employment benefit issues. We are doing this systematically, and we want to do so once and for all”.
In this article we share 4 takeaways from this development;
The breakdown of the N2.7trl approved by the FEC shows that N740bl will go to the payment of outstanding pensions and promotional salary arrears and N1.93trl to clear the obligations to Federal Government contractors and suppliers.
Obligations of the Federal Government date back to 1994, which is over 2 decades now and include the following; Dues owed State Governments, Oil marketers, Power Gencos and Discos, Suppliers & Contractors to Federal government agencies/parastatals, Payments due under the Export Expansion Grant, Outstanding Judgments Balances and Pension/Other benefits to FG employees.
This will be done through the issuance of specific bond instruments(3 year tenure) to individuals owed by the FG (i.e pensions and employee benefits). For the suppliers and contractors, a 10 year tenure liquid promissory note, will be issued and phased over a 3-year period to minimise impact on liquidity and with preference given to those willing to offer the largest discounts.
The National Assembly would be requested to approve the process before implementation.
Impact on Economy
If approved and fully implemented with transparency and accountability the N2.7trl payment will remove the current drag on the economy, these past obligations caused.
It will also improve liquidity in key sectors of the economy, especially the critical power sector.
This will also boost investor confidence in the Nigerian economy, at a time it seeks to attract private capital investments fo finance its economic recovery and growth plan.
For the Banking sector, it will improve the non-performing loan ratio where an unacceptable number of NPLs are linked to FG contracts.
Since Nigeria slipped into recession in 2016, the Federal Government has been exploring policy steps and strategic interventions that could reflate the economy. The approval of the N2.7trl by the Federal Executive Council to pay off debts owed FG contractors, outstanding pension arrears and benefits of employees is a welcome development.
A major concern in the country is the implementation of this plan, which will also require the backing of the National Assembly.
We enjoin the Federal Ministry of Finance to carry along stakeholders on the developments around the payments, through periodic briefings and updates. This will go a long way in ensuring accountability and provide the avenue for fact-checking, to validate policy statements, which is essential for the growth of our democracy.