The Minister Finance, Mrs. Kemi Adeosun, has said that the Federal Executive Council (FEC) approved the process to validate and pay inherited Federal Government contractor and employee liabilities totalling N2.7 trillion.
Adeosun, who made the disclosure on Wednesday while briefing journalists on outcome of FEC meeting, said that the obligations accumulated over the last two decades would be paid through bond and promissory note issuance to resolve long outstanding dues and consequently stimulate economic activities.
The minister said the National Assembly would be requested to approve the process ahead of implementation.
She said the obligations largely consisted of dues owed to state governments, oil marketers, power generation and distribution companies, suppliers and contractors by federal parastatals and agencies, payments due under the Export Expansion Grant, outstanding judgement balances as well as pension and other benefits to Federal Government employees.
Noting that some of the obligations date as far back as 1994, Adeosun said the resolution of this would significantly enhance liquidity in critical sectors of the economy.
She recalled that the Economic Management Team had in March mandated her 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 said following an exhaustive process of reconciliation, the committee had been able to provisionally confirm a discounted total of N2.7 trillion of obligations, consisting of N740bn 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.
The minister noted that these numbers were aligned with existing Federal Government estimates, “and in some cases, are lower than previously estimated.”
She said the supplier and contractor obligations would be resolved through a strict process of final validation following which those confirmed would 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.
“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.
“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 the federal government’s 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.”