Nigeria’s House of Representatives will today meet with key members of President Muhammadu Buhari’s Economic Team on the proposed N2.7 trillion promissory note bond issuance programmes, and $500 million Eurobond, BusinessDay gathered at the weekend.
Those expected to meet with the legislators includes Udoma Udo Udoma, Minister for Budget and National Planning; Kemi Adeosun, Minister of Finance and Rotimi Amaechi, Minister of Transportation, as well as Director General of Debt Management Office (DMO).
The Economic Management Team (EMT) chaired by Osinbajo, had in March 2017 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.
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.
The request was sent to the Speaker of the House of Representatives by the then, Acting President Yemi Osinbajo via a letter with Ref. No: SH/AG.PRESIDENT/02/17 dated 4th August, 2017.
Osinbajo in the letter also solicited for the amendment of the Fiscal Responsibility Act (FRA), with the view to reflect the initiative.
“I forward herewith for your kind consideration and passage into law, the Fiscal Responsibility (Amendment) Bill, 2017.
“The proposed amendment is necessitated by the need to commove the programme of promissory note and bond issuance to provide a final solution to the long-standing issue of outstanding obligations of the Government that have been quantified at a gross amount of N2.7 trillion.
“This programme has become imperative in view of the seriousness of the accumulation of these obligations, which are inimical to Government plans to revive the economy through the provision of improved and modernized infrastructure; and at a human capital level, the issue of pension and promotional arrears, which go back as far as 2012, is causing untold hardships among those who have served. It also adversely affects the morale of those currently in services, and on whom we depend to implement Government programmes.
“However, as you are no doubt aware, pension and salary arrears are recurrent expenditure and the Fiscal Responsibility Act 2007 (FRA) clearly stipulated in sessions 41(1) (a) and 44(2) (b) that the proceeds of borrowing by Government shall be solely towards capital expenditure.
“In this regard, I request that the National Assembly approves the proposed amendment to the FRA to provide legal backing for the use of the mentioned instruments in the satisfaction of the accumulated obligations,” the letter read.
The N2.7 trillion obligations accumulated over the last two decades 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.
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 judgment 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, according to Federal Ministry of Finance.
On the proposed issuance of $500 million, the Committee on Aids, Loans and Debt Management had following previous meetings held with the Minister of Finance and relevant agencies decided to await a favourable period before issuing the $500 million eurobond.
Adeyinka Ajayi during a chat with BusinessDay explained that the Debt Management Office negotiated down from 50 percent cost of first issuance quoted by the transaction parties to a maximum of one-third.
He observed that the sum of $600 million loan has been taken from African Development Bank, adding that the revenue shortfall of Federal Inland Revenue Service (FIRS), Customs and Nigerian National Petroleum Corporation (NNPC) of over N1 trillion, leaves Nigeria with no other option than to source for external funding.
“The estimated cost of the new issuance is about 0.25 percent of the expected proceed of $500 million being approximately N340 million which is lower when compared with 0.32 percent cost for the first issuance of $1 billion, which stood at approximately N986 million.
“After concluding the first eurobond issuance as at February 9th 2017, the government wants to take the USD 500 million eurobond quickly at a favourable interest rate so that the international market interest in Nigeria will not wane.
“However, despite development in the international capital market that may make the issuance slightly more expensive than anticipated, the government is desirous of procuring approval of the National Assembly in readiness of favourable movement in the market,” he noted.
KEHINDE AKINTOLA, Abuja