As FG’s debts cripple the economy
It is very unfortunate to note that the Federal Government’s delay, reluctance, refusal or even neglect to settle its huge indebtedness to domestic economic agents, including contractors and others is one of the reasons the economy remains comatose and the suffering in the land remains excruciating. For obvious economic and social reasons, such as addressing rising unemployment rates, stimulating consumption and reducing the risk of bank failures, the government ought to pay its debts but sadly and quite disappointingly, such wise counsel remains unheeded.
Now that the economy has progressively transited from recession to depression perhaps, the President Muhammadu Buhari-led government must stop to acknowledge the loud and persistent call and take immediate action to kick-start the economy with a redemption of genuine local debts.
Given the recent report of the Central Bank of Nigeria (CBN) after its last Monetary Policy Committee meeting that “federal government’s indebtedness to the domestic economy was crippling economic activities and threatening the health of the nation’s financial system”, the seriousness of the situation and the need to tow the path of reason should dawn on the managers of the economy.
The CBN, statutory banker and financial adviser to the Federal Government, did not stop at pointing out the implications of not settling the debts, it also advised the government to “urgently assess the extent of its indebtedness to domestic economic agents and develop a framework for securitising the debts in order to settle its outstanding domestic contractual obligations which cut across all sectors of the economy”.
Besides the above, the CBN governor, in seeming exasperation, further advised the government to support the monetary policies with effective implementation of fiscal policies, as there was nothing more the monetary policy side of the equation could do to cause a stimulation and growth of the economy.
No doubt, the absence of a clear fiscal policy and an economic direction for the country has been one defining attribute of the current government which all Nigerians have lamented.
Indeed, if the apex bank was offering all the above advice and suggestion to the government for the first time, it can be accused of not having been alive to its duties and responsibilities. This is because, the attitude of the government in not taking the settlement of its debt obligations seriously and the attendant negative implications on the economy should have been a crusade for the CBN which has long been hammered by some stakeholders. However, it is reasonable to conclude that for the CBN to have gone public with its position suggests that its silent observations or suggestions might not have received the attention of the appropriate authorities and mindful of the risks which continued delay in paying the debts portend and the blames that may arise, it decided to go public.
Of course, public officials must consciously restrain themselves from communications that, no matter how factual and well intentioned, may send the wrong signals to the not-so-sophisticated public. For instance, if the the CBN governor is understood, rightly or wrongly, to be overwhelmed by what is happening in the economy that he has been charged as an expert to find solutions to, what would he or anyone else expect from the ordinary citizens?
The governor might have been conveying CBN’s advice and suggestions to the appropriate authority without eliciting expected actions or reactions, but it is not part of his charge to publicly throw-up his hands in surrender or defeat. What is expected of him is to find tolerable ways to secure not just the attention of the President but also his full understanding and appreciation of the matters on the ground with a view to achieving desired actions. The unacceptable alternative, as was in the reported case, is to give the impression that the economy has become intractable. And because many people will believe the governor, stakeholders’ negative reactions may ensue and worsen the already bad situation.
That stated, further delay by the government to commence aggressive settlement of its debts to domestic economic players, after learning the harms the outstanding indebtedness are causing the society and the economy, will amount to a destructive insensitivity on the part of the government. It will certainly mean that financial institutions that had advanced money to those government’s creditors will remain at grave risk of distress as the level of their non-performing credits (whether sub-standard, doubtful or lost), become exacerbated. Indeed, the CBN has warned that the level of bad credits in banks is rising dangerously. If at this time of economic depression a bank in Nigeria becomes distressed or fails, the economic and social consequences will be explosive.
The CBN has recommended that the government should consider securitising its debts to raise money with which to meet its already outstanding debt obligations. Yet another alternative that should be considered is borrowing from the international financial markets where there are some low-cost funds with generous concessionary repayment terms. A combination of these two options can also be considered. Importantly, the reported huge credit balance in the Treasury Single Account (TSA) provides a good starting point pending conclusion of other feasible arrangements.
Finally, preventing the looming socio-economic dangers in today’s Nigeria requires the Buhari-led administration’s immediate injection of huge amount of funds into the economy.
While the government may wish to get involved in new projects, settlement of its domestic indebtedness in all sectors of the economy must be given top priority.