The Federal Government has admitted that the backlog of contractual debts and outstanding welfare issues like pensions valued at N2.7 trillion is contributing to the worsening Non-performing loans of commercial banks in the country, National Daily has gathered.
According to Minister of Finance, Mrs. Kemi Adeosun, these debts need not be prolonged anymore, as the oldest is dated 1994, while the obligations include money is owed to state governments, contractors, oil marketers, as well as power generation and distribution companies.
With the development, the banking sector may be in for a treat once the process of payments for the outstanding, which currently is waiting for legislative action, is completed.
The lingering obligations are assessed as part of issues constraining growth, raising reputation issues for government and escalating the level of bad loans in the books of banks, now at about 10.3 per cent due to interest accumulations against debtors.
In a note from the ministry’s Director of Information, Salisu Na’Inna Dambatta, Kemi Adeosu said: “The government cannot allow this level of inherited obligations to go unresolved any longer. As part of the process to reset the economy, we must address these legacy issues once and for all.
“The contractor obligations have a significant effect on private sector confidence and are a direct cause of non-performing loans (NPLs) in the banking sector.
“We are embarking on a significant programme of capital expenditure and to optimize the contracting process and deliver maximum value for Nigerians, we cannot have these legacy issues constraining us”.
She said that paying the debts now would be in the interest of the government and economy, as a way to restore private sector confidence in government while embarking on a range of capital projects.
The move would put significant liquidity into the system, which would stimulate spending and economic activity, including contractor obligations linked to NPLs in the banking system, which the programme is expected to resolve.
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A government contractor, who would not want his name in print, told The Guardian that the prolonged debts either mean that they want to punish someone or push the company to go under.
“Majority of the funds used in executing the contracts are borrowed from banks at high rates, with timeline. The implications are that if you fail the terms, the interests and rates are compounded by banks. Still, when the situation becomes too numerous, banks’ liquidity positions are impacted as you can see.
“In this situation, who would believe government’s business? If contractors are liquidated this way, where will they raise another, especially now that there is even much need for private sector contributions in building the economy?” he queried.
But speaking on enthroning a regime of transparency and building confidence among civil servants, the minister pointed out that pension and employee benefit arrears are simply unacceptable.
“We rely heavily on the hard work and dedication of our civil servants, which is even more important as we implement and deliver the reforms we need to make government more efficient. We must demonstrate a willingness to ensure their issues and concerns are addressed, and this solution does that.
With this revelation and the awaited legislative action which will lead to quick recovery of the debt, the banking industry in Nigeria will be even stronger.