Emeka Okoroanyanwu
Nigerian workers were last week taken aback by Federal Government’s announcement to borrow N2 trillion from the over N10 trillion pension funds to finance infrastructure development in the country. The decision to borrow the fund was made public after the National Economic Council (NEC) meeting presided over by the Vice President, Yemi Osinbajo, in Abuja.
Briefing newsmen at the end of the NEC meeting, Kaduna State Governor, Mallam Nasir el-Rufai, said that the decision of the Federal Government to take N2 trillion out of the pension funds was reached by a NEC sub-committee. According to him, the country will never be able to address its road infrastructure deficit with the current budgetary allocation for road construction and maintenance.
He explained that with the N200 billion in the 2019 budget and N169 billion in 2020 budget, roads couldn’t be properly fixed.
“In 2019 budget, N200 billion was budgeted for construction and maintenance of federal highways. In 2020, the budget is N169 billion. If we continue this way, we will never be able to fund highway infrastructure. We need to unlock funds to construct and maintain highways. We will never be able to construct and maintain highways with N200 billion every year. Highway infrastructure and maintenance can only be done with long term funds,” the governor said.
On why the borrowing from the N10 trillion pension fund was necessary, el-Rufai said that the decision followed an interim report earlier presented to the council, and that the decision was in compliance with the Pension Reform Act 2004, which empowers the government to borrow 20 per cent of the fund to address national issues.
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According to him, various countries of the world, such as Chile and South Africa funded their infrastructure growth by borrowing money from workers’ pension funds. El-Rufai also stated that with Nigeria’s pension funds largely dominated by youths in their 30s, who still have several years ahead of retirement, utilising the funds for infrastructure would not generate any problem.
The move by the Federal Government to dip hands into the pension fund has expectedly generated angry reactions from various quarters most of whom fear that the plan may scuttle the pension scheme, which has been praised for its good management. Others were of the opinion that given government’s profligacy in the use of funds, the money may never be recovered.
NLC opposes FG
One group that was livid over the government’s plan was the Nigerian Labour Congress (NLC). Its president, Comrade Ayuba Wabba, said the decision was devoid of effec¬tive consultation with the stakeholders, who own the funds collectively. According to him, the government should come to the realisa¬tion that pension fund was a joint contribution, belonging to workers and the employers, therefore, should not be borrowed at will. Wabba said the NLC was strongly advising the govern¬ment to shelve its plan to borrow from the Fund and to not do anything that would undermine the integrity of the pension scheme.
Said Wabba; “Government needs to be reminded that the contributory pension scheme, which came into being in 2004, is fully funded by workers and employers and is privately managed by Pension Fund Administrators (PFAs). The funds are in the in¬dividual Retirement Savings Account (RSA) of beneficia¬ries.
“The main objective of the scheme is to ensure that after retirement every worker in public or private sector who had contributed to the scheme receives his/her retirement benefits as and when due. It is important to stress that the N10 trillion pension fund is not warehoused in Pension Commission, which is the regulator, the Central Bank of Nigeria, the Pension Fund Administrator, or the pension fund custodian.
“The fund is warehoused in the private individual Retirement Savings Accounts of contributors, who are workers and beneficiaries. The guidelines on investing pension funds, which had the input of organised labour and the pension union has the primary objective of adequate return on investment and the safety of the fund. The pension fund administrators are investing for maximum return on investment for the benefit of the beneficiary and not borrowing,” the NLC President said.
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“The Pension Fund Administrators are to invest based on their risk and reward appetite; but usually in minimal risk entities. They are not to be coerced or cajoled to invest because it is criminal to do so,” the NLC president said, noting that it was curious that labour as a critical stakeholder as provided in the Pension Act was not consulted before the government took the decision.
NECA too
Toeing the same line with the NLC, the Nigeria Employers’ Consultative Association condemned the move by the Federal Government to borrow N2trillion from the Pension Fund. NECA said the move was unnecessary and an attempt to frustrate the future of contributors.
The Director-General of NECA, Dr. Timothy Olawale, advised government to utilise the recovered Abacha loot and other recovered/forfeited stolen funds for infrastructural development and not dip its hands into the pension fund.
A retiree, Sunday Kalu warned the Federal Government to shelve its plan to borrow money from workers’ pension fund. He told The Nigerian Xpress that government should not be trusted. “Government cannot be trusted. How are we sure that subsequent governments will agree to pay back the borrowed money?” he asked.
Another Worker with the Lagos State Government who wishes to remain anonymous was of the opinion that government should not borrow money from the pension funds, arguing that many state governments have not been contributing to the fund and wondered why such governments should benefit from a pool they have not been contributing to.
However, Minister of Finance, Budget and National Planning, Zainab Ahmed said Federal Government was not planning to borrow N2trillion pension funds for infrastructure development.
She said that the National Economic Council only set up a committee of itself to explore the possibility of being able to encourage the pension fund managers to invest in infrastructure development.
According to her, “what we agreed now is to design a product that pension fund managers will find attractive enough to invest in, that will give them free safe returns. Right now, the regulator, PENCOM, actually allows pension funds managers to invest up to 20 per cent of their money in infrastructure,” she said.
“We are actually working to design products which they can uptake and we are also considering, in addition to regulation, whether we should amend the Act to allow them do other things,” she stated.
On government borrowings, she explained that government was working very hard to reduce domestic borrowing.
“In 2015, the total government stock that we had was 80 per cent domestic and 20 per cent foreign. But we are gradually changing that; the debt management strategy is to move the ratio to 60 per cent domestic and 40 per cent external and now it’s 35 per cent external borrowing. This is to give room for private sector to borrow and to reduce cost of debt servicing,” she said.
Many Nigerians are, however, worried that the latest government move to borrow from the pension fund has the capacity to add to the country’s already high debt profile estimated at over $26 billion as at end of last year.
Figures released from Nigeria’s Debt Management Office (DMO) last year shows that the country’s debt profile as of December 31, 2018 hit N24.387 trillion. The debt, according to the DMO Director General, Patience Oniha grew by 12.25 per cent from N21.725 trillion in 2017. This was about N2.66 trillion rise in just one year. The DMO DG said Nigeria’s domestic debt accounted for 68.18 percent of the figure, which consisted of debts owed by both the federal and state governments.
Going by the figure presented by the DMO, the huge addition was recorded in the fourth quarter of 2018, which came with N1.96 trillion or 8.03 per cent increase, against the N22.428 trillion recorded at end of September 2018.
The rising national debt became alarming when the current administration came into power. The new borrowings made by the government so far include N1.457 trillion in 2015; N2.321 trillion in 2017; N1.643trillion in 2018 and N1.649 trillion in 2019.
The figures from the DMO show that both the domestic and external debts have been on a steady rise over the last three years.
In 2016, for instance, Nigeria’s debt burden was about N16 trillion, an increase of over N4trillion over that of 2015. In 2017, the country’s debt was N17.117 trillion but increased to N19.234 trillion at the end of last year, an increase of 11.80 per cent.
In 2019 fiscal year, the government is planning to borrow about N1.6trn from the domestic capital market to partly finance the budget.
On the average, government has spent 25 per cent on debt servicing so far. In 2017, it spent N1.8trillion on debt servicing, while N1.455trn went into domestic debt servicing, N181.40bn was spent to service external debt. In 2018, government allocated N2.2trillion in the budget for debt services.
Of this amount, N1.766trillion was for domestic debt servicing, N250bn for external debt servicing, and N190bn for Sinking Fund to retire matured loans.
Financial experts at both the International Monetary Fund (IMF) and the World Bank (WB) have complained that the country’s revenue-to-debt ratio is unsustainable and portends a serious danger for the future generation of Nigerians. They are of the opinion that while the effect of the increasing debt may not be immediately felt in totality, it could be catastrophic in the long-term with a chunk of revenue consumed by debt servicing to the detriment of infrastructural development. For instance, about N2.140 trillion of the N8.8 trillion proposed in the 2019 budget has been earmarked for debt servicing, representing about 25 per cent of the total budget allocation.
The International Monetary Fund (IMF) on its part pointed at the gloomy situation of the country’s economy saying that Nigeria spends more than 50 per cent of its revenues on servicing debts, a situation that does not give room for other necessary expenses.
Speaking at the presentation of the Regional Economic Outlook for Sub-Saharan Africa – Capital Flows and the Future of Work in Abuja last year, Senior Resident Representative and Mission Chief for Nigeria, African Department, Amine Mati, put Nigeria’s growth rate for 2018 at 1.9 per cent.
He said that although Nigeria’s debt to Gross Domestic Product remained low at between 20 and 25 per cent, the country spent a high proportion of its revenue on debt servicing as a result of low revenue generation. He said the debt servicing to revenue ratio was more than 50 per cent while for sub-Saharan Africa, the rate was about 10 per cent; a figure he said was too high and reminiscent of what the region went through in the period following debt relief at the beginning of the 21st century.
“Debt to GDP ratio is increasing in the past five years. Public debt is diverting more resources towards debt servicing. The interest rate has gone up to where they used to be around the year 2000 before the debt relief. The adjustment has relied on spending compression rather than revenues mobilisation. Meeting the Sustainable Development Goals will require stronger growth and more financing,” Mati said.
According to him, “policies are needed today to create more jobs in the coming years. Twenty million jobs are required every year in Sub-Saharan Africa to meet the SDGs. Job creation is complicated by uncertainty to which technology replaces labour,” he said.
