The Federal Executive Council, FEC, has approved N2.7 trillion for payment of the federal government’s discounted obligations.
The money consists 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.
This was revealed on Wednesday by the Minister of Finance, Kemi Adeosun, while briefing State House correspondents after the meeting of the council at the Presidential Villa, Abuja.
Mrs. Adeosun said the obligations accumulated over the last two decades and will be paid through bonds and promissory note issuance to resolve long outstanding dues and to also stimulate economic activity.
The spokesperson for the ministry, Salisu Danbatta, in a background note said the debt issuance programme is to resolve a number of inherited and long outstanding federal government 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,” he said.
Earlier in March, the Economic Management Team, EMT under the leadership of Acting President Yemi Osinbajo, had mandated the Minister of Finance to head a committee that would establish a process to confirm the validity of inherited federal government obligations, and propose a mechanism to resolve them.
These obligations consist of dues owed to state governments, oil marketers, power generation and distribution companies, suppliers and contractors to federal government 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.
“Some of the obligations date back as far as 1994. The resolution of this will significantly enhance liquidity in critical sectors of the economy,” he said.
He said 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, MTEF, by the Ministry of Budget and National Planning.”
During the briefing, Mrs. Adeosun said certain ‘legacy issues’ ought to be addressed to get the economy back on track.
“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 not find ourselves in this situation again. 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 ratios in the banking sector, where an unacceptable number of NPL’s are linked to government contracts,” she noted.
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