The Federal Executive Council on Wednesday approved a proposal presented by the Ministry of Finance to offset accumulated Federal Government’s debts totalling N2.7tn.
The Minister of Finance, Mrs. Kemi Adeosun, disclosed this to State House correspondents at the end of the weekly meeting of the council presided over by Acting President Yemi Osinbajo at the Presidential Villa, Abuja.
Adeosun said the obligations that accumulated over the last two decades would be paid through bond and promissory note issuance.
She said the inherited and long outstanding Federal Government’s obligations included those being owed contractors, state governments and its employees.
We had pension liabilities, salaries some of which go back to 2006; unpaid salaries from 2012 to 2015; pensions to former Nigeria Airways staff from 2009, the Export Expansion Grant which was suspended in 2014; there are actually obligations on that between 2007 and 2014 when they were suspendend.
She said that because of the government debts, there was illiquidity in such places as the power sector, which had reversal of tariff, leading to a debt to GENCOs of about N495 billion.
She said that the debt had held back investments in the power sector.
She stated that with the council’s approval, the government would make a request to the National Assembly to approve the programme ahead of implementation.
The obligations, according to her, largely consist of dues owed state governments, oil marketers, power generation and distribution companies, suppliers and contractors by government’s parastatals and agencies, as well as payments due under the Export Expansion Grant, outstanding judgement balances, pension and other benefits to Federal Government employees.
She said the resolution of some of the obligations that dated back to 1994 would significantly enhance liquidity in critical sectors of the economy.
The minister gave the breakdown of the discounted total of N2.7tn to consist of N740bn outstanding pensions and promotional salary arrears (not discounted) and N1.93tn (discounted) of other obligations, including dues to contractors and suppliers.
Adeosun stated, “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 (10-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 three years.
“These obligations will then be incorporated into the Medium-Term Expenditure Framework by the Ministry of Budget and National Planning.”
She added, “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.”