FG set to pay N2.7 trillion owed contractors
THE Federal Executive Council (FEC) has approved the process to validate and pay inherited Federal Government contractor and employee liabilities worth N2.7 trillion and dating back two decades.
Briefing State House correspondents after a meeting of the council presided over by Acting President Yemi Osinbajo at the Presidential Villa, Abuja on Wednesday, Minister of Finance, Kemi Adeosun, said the obligations which accumulated over the last two decades would be paid through bond and promissory note issuance to resolve long outstanding dues and stimulate economic activity.
She said FEC approved her ministry’s proposed validation process and promissory note and debt issuance programme to resolve a number of inherited and long outstanding Federal Government obligations to contractors, state governments and employees.
According to her, this will be followed by a request to the National Assembly to approve the programme ahead of implementation.
She recalled that In March 2017, the Economic Management Team, under the leadership of Acting President 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.
She noted that these obligations largely consisted of dues owed to state governments, oil marketers, power generation and distribution companies, suppliers and contractors by 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,” she added.
Adeosun remarked that 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.
According the her, these numbers are aligned with existing Federal Government estimates, and in some cases, are lower than previously estimated.
She explained that 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 minimize impact on liquidity and with preference given to those willing to offer the largest discounts.
She said 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 said further: “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.”
“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 Federal Government 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.”