Insurance, pension long term funds will help Nigeria reduce debts
Nigeria’s high cost of borrowing and increasing domestic debt will remain a challenge for a long time to come, unless there is strategic effort to develop insurance and pension sectors as major providers of long term funds for economic development.
Though pension has assumed a growth trajectory since the commencement of the Pension Reform Act 2004 as amended in 2014, which has put the sector’s assets in excess of N6.5 trillion and a huge investible long term funds as at the end of September 2017; while the insurance sector is largely underdeveloped with total premium income of about N350 billion as at end of 2016.
While it’s been agreed that government has begun a process to develop the pension sector by contributing into the retirement savings account of its employees, though has lagged since the present government, its obligation to the insurance industry in terms of compliance with budgetary allocation for insurance has been largely very poor.
Being the biggest consumer of insurance in the country, its regular compliance with the law or otherwise payment of premium for insurance has great impact on the success of the industry.
Analysis of government’s group life insurance for its employees shows that only a part of the agreed premium are received by insurers, while many months go without cover for lack of funds.
Underdevelopment of the insurance sector will result in a lack of long term funds for economic development. In this case, government which ought to access long term funs from these sectors will continue to dry the capital market of funds through sell of bonds, making it difficult and at very exorbitant rate for the private sector to access funds.
This is a major reason for high cost of borrowing in the economy which currently stands at around 24 and 25 percent.
The high interest rate which has largely crippled the manufacturing sector is making cost of production high, creating unemployment and underdevelopment of the larger economy.
The National Bureau of Statistics, NBS last year said Nigeria’s foreign debt stood at $15.05 billion, while the domestic debt portfolio was put at N14.06 trillion in June this year.
The NBS in its report on Nigerian Domestic and Foreign Debt – June 2017 data, showed that $9.67 billion of the debt was multilateral; $218.25 million bilateral, while $5.15 billion was from the Exim Bank of China, credited to the Federal Government.
The report stated: “The total Federal Government debt accounted for 74 per cent of Nigeria’s total foreign debt while all states and the Federal Capital Territory, FCT, accounted for the remaining 26 per cent.
“Similarly, total Federal Government’s debt accounted for 78.66 per cent of Nigeria’s total domestic debt, while all states and the Federal Capital Territory, FCT, accounted for the 21.34 percent balance.” A breakdown of the Federal Government domestic debt stock by instruments reflected that N7.5 trillion or 68.41 per cent of the debt was in Federal Government Bonds. About N3.3 trillion or 29.64 per cent are in treasury bills, while N215.99 million or 1.95 percent are in treasury bonds.
Industry experts who commented on the development said government must be committed to developing the insurance sector by complying with the FG directive to ensure its assets and pay premium as and when due.
This will not only bring stability to the industry, it will enable them invest the premiums for return on investment to enable them meet claims obligation and provide long term funding for needy sectors of the economy.
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