Rising from its meeting recently, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) literally gave up on the growth of the Nigerian economy in this period of recession. It deplored the non-implementation of fiscal policy by the Federal Government, maintaining that the only leeway available to the economy was a strict implementation of the policy. The MPC however raised a very instructive and fundamental issue that tugs at the base of the economy: the non-payment of the debt owed government contractors which, at the moment, is staggering.
According to the committee, the non-payment of the money has a deleterious effect on the economy. “These accumulated debts have slowed the business activities of economic agents, most of whom are indebted to the banking system, thus compromising the integrity of the financial system,” it said. The debt owed the contractors by the Federal Government, which is put at N1.97 trillion, has significantly whittled down the growth of the economy. This is not to talk of the cumulative debts owed these contractors by the three tiers of government and the Federal Capital Territory (FCT) which is said to stand at the sum of N2.42 trillion.
These figures were earlier disclosed by the National Chairman of the Nigerian Contractors Association (NCA), Mr. Onuche Okoh. “By our statistics, the Federal Government alone is owing contractors about N1.97 trillion and, if put together with the 36 states, the FCT and the 774 local government areas, the total debt is N2.42 trillion,” he said. Indeed, the MPC made a significant correlation between these debts and the current paralysis in the economy. According to it, the debts, most of which emanated from funds sourced from the banking system, had combined to drag down the banking system, inflicting unnecessary hardships on Nigerians. For instance, unable to meet their financial obligations, many of the banks have had to lay off their staff while many more have resorted to stifling business models to stay afloat in the current economic recession.
The non-payment of debts owed banks by the contractors has one sure effect: interest charges will overrun the entire contract amount and the lending banks may have no other option but to make substantial provisions for non-performing loans or bad debts. Worse still is the fact that this will precariously affect the capacity of the lending banks to extend credit facilities to other needy economic agencies. The overall outcome of this is that the banking system will be severely affected, with dire consequences for the economy and the banking system, one of which is bank distress, and loss of investments by investors with hard-earned deposits of customers imperiled by the distress.
Okoh even drew attention to another strand of the socioeconomic impact of the non-payment of the debt, namely the hardships that the contractors had been facing. According to him, 579 of the union’s members had died of heart attacks. “The non-payment of contractors has really affected the welfare of our members. Currently, the association has lost about 579 members due to heart attacks. This is because most of us took loans to execute the jobs and when we failed to pay the banks at the right time, they went after us and the interest rate keeps accumulating,” he lamented.
What is really lamentable about these accumulated debts is that many of them, which were facilities from banks, have quadrupled since they were entered into. Many of the contractors have lost their collateral and the majority of the debts have gone bad due to the staggering amounts they have now become. This no doubt explains Okoh’s statistics of deaths in the ranks of the contractors.
What is however further lamentable is the decision of the Federal Government, in cases where it is paying piecemeal, to concentrate on recent debt obligations while leaving previous ones unattended to. Since government is a continuum, it is obligatory for the current administration to sort out previous debt obligations and liquidate them accordingly before jumping to the payment of contractors whose debts it was directly responsible for. The injection of these sums into the economy will no doubt jump start it, as it will have a ripple effect on virtually all departments of the Nigerian life. Since many of the contractors live among their Nigerian kinsmen and also have local obligations to different sections of the economy, paying their debts would make funds to percolate to the grass roots and thus, in a way, reflate the economy.
We implore the Federal Government to make the payment of contractors one of its priorities at this period of economic recession and to be fair in the liquidation of the debts by carrying earlier-owed contractors along as well. The effect of this will be salutary on the economy. It is a win-win for an economy whose prospects of recovery, according to analysts, is dismal.
