The Federal Executive Council(FEC) has today approved the Ministry of Finance’s proposed validation process and promissory note and debt issuance programme to resolve a number of inherited and long outstanding Federal Government (FG) obligations to contractors, State governments and employees.
This will be followed by a request to the National Assembly to approve the programme ahead of implementation.
Also, Obligations accumulated over the last two decades will be paid through bond and promissory note issuance to resolve long outstanding dues and stimulate economic activity.
These obligations largely consist of dues owed to State governments, oil marketers, power generation and distribution companies, suppliers and contractors by FG parastatals and agencies, payments due under the Export Expansion Grant (EEG), outstanding judgement balances as well as pension and other benefits to Federal Government employees.
In March 2017, the Economic Management Team, under the leadership of His Excellency Acting President Yemi Osinbajo, mandated the Minister of Finance to Chair a Committee that would establish a process to confirm the validity of inherited Federal Government obligations, and propose a mechanism to resolve them.
Some of the obligations date back as far as 1994 and the resolution of this has been envisaged to significantly enhance liquidity in critical sectors of the economy.
Following an exhaustive process of reconciliation, the committee has been able to provisionally confirm a discounted total of N2.7 trillion of obligations, consisting of N740 billion of outstanding pensions and promotional salary arrears (not discounted) and N1.93 trillion (discounted) of other obligations including dues to Federal Government contractors and suppliers. These numbers are aligned with existing Federal Government estimates, and in some cases, are lower than previously estimated.
Speaking to the media following the FEC meeting,the Minister of Finance Kemi Adeosun said; “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. We are enhancing the Government’s controls and processes to ensure we do find ourselves in this situation again.”
She further said that, “Over the last two decades the Federal Government has built up over N2.7 trillion of obligations which were not cash backed, and remain outstanding to this day. We have developed a solution that will simultaneously resolve these issues, and deliver a boost to economic performance.
“Our solution will remove the drag on economic performance these obligations cause, improve liquidity in key sectors, especially the power sector where we will resolve FG dues to the distribution and generation companies, and so boost investor confidence. It will also help to improve non-performing loan ratio’s in the banking sector, where an unacceptable number of NPL’s are linked to Government contracts” she noted.
Meanwhile, the supplier and contractor obligations will be resolved through a strict process of final validation, following which those confirmed will be settled through the issuance of liquid promissory notes (ten-year tenure) phased over a three-year period to minimise impact on liquidity and with preference given to those willing to offer the largest discounts.
Obligations owed to individuals (for example pensions and employee benefits) will be resolved through the issuance of specific bond instruments, again phased over the next 3 years.
These obligations will then be incorporated into the Medium- Term Expenditure Framework by the Ministry of Budget and National Planning.