Domestic debts crippling banking, worsening unemployment, by Jerry Uwah

Nigeria’s economy is creaking under the enormous weight of the country’s mounting domestic debts. The signs of cracks are becoming obvious everywhere. Perhaps, the most dangerous part of the country’s debt profile of $44 billion is the domestic debt which has climbed to a record N5.6 trillion. The federal government owes pensioners, contractors, construction companies, exporters, electricity distribution companies (DisCos) generation companies (GenCos), state governments, judgment debts and petroleum products marketers.
The domestic debt burden is crippling the banking system and taking unemployment to calamitous proportions. The contractors who raised loans from banks to execute government projects but could not be paid to enable them pay back their loans have shut down their businesses and pushed thousands of workers into the boisterous labour market.
Perhaps, it is in the downstream sector of the oil industry that the effect of Nigeria’s mountain of domestic debt is more conspicuous. Banks’ non-performing loans are bursting at the seams because of the inability of fuel marketers to pay back the loans they raised to import petrol at higher landing cost and sell at lower official pump price decreed by the federal government. The difference between the lower official pump price and higher landing cost constitute the fuel subsidy which is now the subject of controversy between the marketers and government. No one knows precisely how much the federal government owes the country’s dubious fuel marketers. That is because the marketers had in 2012 defrauded the federal government to the tune of N1.5 trillion by collecting subsidy on fuel that never hit the shores of Nigeria. Since that fuel subsidy scam, government has secured the services of scores of auditors to vet fuel subsidy figures submitted by the marketers. Figures touted by creditors and the debtor as fuel subsidy debt range from N800 billion to N386 billion respectively.
The Major Oil Marketers Association of Nigeria (MOMAN), an association with an acronym that almost sounds like mammon, claims that its members which is made up of five major marketers including Mobil, ConOil and MRS are owed N130 billion in fuel subsidy arrears.
MOMAN’s debt is child’s play compared to what government owes the Independent Petroleum Marketers Association of Nigeria (IPMAN) and the Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN). Unlike MOMAN which is an exclusive club of a few billionaire marketers, IPMAN is an amalgam of hundreds of medium and pocket-size retail outlet operators.
The oil marketers had earlier submitted a debt bill of N650 billion to the federal government as fuel subsidy arrears, interest rate accruals, cost of exchange rate variation and storage facilities bill respectively. The federal government for its part reviewed the bill down to N429 billion and eventually approved payment of N386 billion. None has been paid so far.
Besides government’s chronic illiquidity, settlement of the marketers’ debt is delayed by the cumbersome process of debt verification imposed on the debtor by the fraudulent nature of the creditors.
After scores of auditors vet the debt figures submitted by the marketers, an international accounting firm operating in Nigeria has to validate the marketers’ claim. After being duped to the tune of N1.5 trillion, government does not trust anyone in the fuel marketing business. Even if any of the creditors appears trustworthy, government has inadvertently adopted the accountant’s slogan: “trust, but verify”. That probably explains why the marketers have to wait for so long to collect their fuel subsidy debts. However, something has to be done in view of the disastrous consequences of dragging the burdensome debts.
Fuel marketers’ debt is a huge burden on Nigeria’s banking system. Most of the loans obtained by marketers during the days of fuel subsidy have become non-performing risk assets which drag some banks perilously close to insolvency.
Government should verify the debts and settle the genuine ones to enable the marketers service their bank loans. With the plummeting value of the naira in the foreign exchange market, the marketers are losing from both ends.
The loans they raised in 2014 at N197 to the dollar to import petrol now have to be repaid at N305 to the dollar. With elections uncertainty clouding Nigeria’s political horizon, the marketers’ indebtedness to banks might further escalate if the naira plummets again.
The Central Bank of Nigeria (CBN) is under pressure to compel banks to halt interest accruals on the loans raised by marketers to import petrol as long as it takes the federal government to pay the verified subsidy. That would amount to robbing the banks of their legitimate source of income. The solution to the problem borders on prompt payment of the verified subsidy debts.
That would not only reduce banks’ mounting non-performing loans; it would serve as a palliative to the country’s calamitous unemployment problem.
Many of the marketers have shut down their retail outlets as a result of the debt burden engendered by unpaid subsidy. Hundreds of people have lost their jobs as a result of such closures. Some banks have forcefully taken over the depots of some members of DAPPMAN thus forcing them out of business.
The federal government’s domestic debt is worsening the country’s unemployment problem and crippling banks at the same time. Government can kill two birds with one stone by paying some of its domestic debts.