RECENTLY, President Muhammadu Buhari granted approval to 11 states of the federation to offset loans to commercial banks through bonds, our Business Correspondent LINUS OOTA writes on the positive impact of the development on the Nigerian economy.
The determination of President Muhammadu Buhari to end profligacy, mismanagement of the nation’s revenue which is dwindling by the day and block leakages with a view to saving needed funds to drive an APC-led government’s economic and infrastructure development has reach advance stage.
President Buhari has consistently assured Nigerians of succour from the effects of the nation’s current economic troubles emphasising the uncoordinated management of the national economy by former President Goodluck Jonathan and his economic team.
The federal and states debts under the last Government grew exponentially even while the country recorded the highest revenue accrued from impressive crude oil prices over a five-year period before the downward spiral of international oil prices.
Last week, Vice President Yemi Osinbajo chaired National Economic Council, NEC meeting where he announced the approval for 11 states of the federation to offset loans to commercial banks through bonds out of the total number of 22 states that applied for the bond.
The 22 states had submitted reports and applied for the restructuring process following President Buhari’s approval on the plan to restructure bank loans of states into federal government bonds.
The proposal, which seeks to convert and restructure the bad loans into bonds with the assistance of the Debt Management Office, DMO is expected to have a tenor of between 15 and 20 years.
Speaking in Abuja, the governors of Kwara, Jigawa, Anambra and Ogun and the Director General of the DMO, Abraham Nwankwo told NEC members that it had requested the states to reconcile figures with the banks which they have jointly authenticated as at June 30, this year.
“As at August 14, 2015, out of the 22 states that have applied, FGN bonds have been issued in respect of the loans of 11 states. The bonds were issued to 14 banks after submitting the reconciled figures and other required documents for the restructuring,” the governors said.
The governors also said that with this development, the DMO is currently reviewing the additional submissions by states in the second phase of the programme.
One of the earliest demands placed before President Muhammadu Buhari, even before he was sworn-in, was a request for financial bailout of states which could not pay their workers’ salaries. It was championed by the governors of the All Progressives Congress, APC led by Governor Rochas Okorocha of Imo State.
After initially balking, Buhari got the National Economic Council, ECA through the Central Bank of Nigeria and the Federal Ministry of Finance to package a comprehensive bailout fund totalling over N1.2 trillion. The funds were extracted from the Excess Crude Account, ECA proceeds from the Liquefied Natural Gas, LNG operations, a CBN special intervention fund and a debt relief package for highly indebted states to enjoy reduced debt service costs.
Speaking further on the issue, Director General of the Debt Management Office, DMO, Mr. Abraham Nwankwo, expressed optimism that the recent restructuring of the short-term bank loans owed by 11 state governments into long-term Federal Government of Nigeria, FGN Bonds would cut their monthly debt service burden by a minimum of 55 per cent and maximum of 97 per cent.
This was as he assured that the renegotiated facilities would equally result in interest rate savings of between three and nine per cent per annum for the affected states and help regain fiscal balance.
Nwankwo stated this in Abuja shortly after a meeting with a Kenyan delegation, comprising officials from the Central Bank of Kenya and the Treasury/Debt Management Department, which was on a study tour to unravel the success story of the Nigerian domestic bond market.
Nwankwo, who said the restructuring had been affected through the reopening of the FGN Bonds issued on July 18, 2014 and maturing on July 18, 2034, asserted that the pricing was based on the yield to date of the bond at a 30-day average, resulting in a transaction yield of 14.83 per cent.
He added that more states were presently in the process of finalising their documentation and reconciliation of balances with banks so that their debts could also be restructured in the second phase of the debt restructuring programme in the next couple of weeks.
According to him, the programme is open to any state, which has an unsustainable debt burden from commercial bank loans adding that the benefits of the initiative to the states, he said banks’ balance sheets would also improve, as weak sub national loan assets are replaced with high quality sovereign assets.
He noted that the FGN Bonds enjoy enhanced liquidity as they are traded in the secondary market, affording the banks improved space to lend to other sectors of the economy as they are free to convert their FGN Bond holdings into cash in the secondary market.
He said the commercial loan-to-FGN Bond plan was one of the salutary options for short-term fiscal stabilisation, which was put forward by the DMO to reduce the debt-service outflow of states and free resources for them to meet other obligations, particularly clearance of arrears of salaries and pensions.
Similarly, the Central Bank of Nigeria, CBN has said that it had given approval to the request by the Deposit Money Banks to provide funds for state governments to enable them to pay the backlog of salaries of their workers.
This central bank stated this in a statement made available to our correspondent and signed by the Director, Corporate Communications, CBN, Mr. Mu’azu Ibrahim.
It said in the statement that the approval was based on the CBN’s decision to collaborate with relevant stakeholders to consider ways of liquidating the outstanding staff salaries owed by states and local governments.
The statement read in part, “The Central Bank of Nigeria has approved the request by the Deposit Money Banks to provide financial accommodation to state governments to enable them to pay the backlog of salaries of their workers.
“This is sequel to the decision by the National Executive Council at its meeting of June 29, 2015 requesting the Central Bank of Nigeria, in collaboration with other stakeholders, to appraise and consider ways of liquidating the outstanding staff salaries owed by state and local governments.
“The conditions for accessing the loan facility include resolutions of the State Executive Council authorising the borrowing and state house of assembly consenting to the loan package, as well as issuance of Irrevocable Standing Payment Order to ensure timely repayment.”
The statement said out of the 27 states involved, funds had been disbursed to two states, namely: Zamfara and Kwara States, which met the requirements as agreed with their respective banks.
Efforts, it added, would be made in the coming days to conclude disbursements to other states so that all outstanding salaries to civil servants could be cleared.
The CBN approval is coming just three days after the Debt Management Office had said that the 11 states that had their commercial debts restructured into bonds would be paying an interest rate of 14.83 per cent of the value, which their debts to commercial banks were converted into.
The DG, DMO, Dr. Abraham Nwankwo, had stated in Abuja that the 14.83 per cent would be paid by the 11 states whose debts had already been restructured in the first phase of the exercise.
The first 11 states that got their debts to commercial banks restructured are Osun, N88.6bn; Delta, N69.8bn; Ogun, N55.4bn; Imo, N37.1bn; Ekiti, N18.8bn; Kwara, N15.6bn; and Edo, N11.9bn. Others are Benue, N10.9bn; Oyo, N9.1bn; Bauchi, N6.5bn and Kogi, N0.81bn.