By Obinna Chima
The federal government has allayed fears of likely default by states that had issued bonds, saying that it would ensure that the debt obligations are redeemed.
Clearly, the federal government disclosed that it would be bearing the repayment burden of states that had issued the debt instrument, especially states it (the federal government) is indebted to.
The Finance Minister, Mrs. Kemi Adeosun, gave the assurance to bond holders, in response to enquiries by THISDAY. This followed concerns raised by a lot of bond holders after Thursday’s announcement by the federal government that it would not make deductions from states’ Federation Account allocations for the month of March on their restructured loans so as to allow them pay their workers’ salaries.
Adeosun, who made the announcement at the end of a meeting of the National Economic Council (NEC) had said the decision to stop the deductions was informed by the fact that states do not have enough resources to meet their obligations.
But the move was not well received by some investors in fixed income instruments such as commercial bank, pension fund administrators and some multilateral institutions, who felt that the Irrevocable Standing Payment Orders (ISPOs), which was the primary comfort for them to purchase the securities was being tampered with. Some even expressed disappointment that the federal government did not carry them along before such decision was arrived at.
However, Adeosun stressed that all the bonds would be redeemed as at when due.
According to her, “the bond holders are getting paid. The Federal Government of Nigeria is bearing the burden as in many cases as it is owing states.”
States which included Lagos, Kaduna, Cross River, Edo, Ogun, Bauchi, Katsina, Osun, Oyo, Enugu, Taraba, Borno, Delta, Plateau, Yobe, Benue, Abia, Zamfara, Imo and Kogi, had issued bonds in the past years to support infrastructure developments in their states.
States that desire to raise funds from the bond market are required to execute an ISPO, which must be approved by the Honourable Minister of Finance mandating the Office of the Accountant General of the Federation (OAGF) to, on a monthly basis, deduct and remit pension contributions and funds for the redemption of the debt obligation of the state.
Adeosun had said at the NEC meeting that low receipts from crude oil sales meant that there was insufficient revenue to share, thereby making it harder for states to survive.
She said: “This is an update on the financial situation in the states: it was discussed extensively that currently the Federation Account receipts are among the lowest that has been seen in recent memory.
“We are looking at N299.7 billion this month (for March allocation) and that is because of the very low oil prices recorded in February and January, if you remember oil prices went as low as $28 and $31 and that has affected receipts to the Federation Account.
“As a result of which I approached the president at the behest of the state governors that we defer the loan deductions from the Federation Account entitlements and the aim of this is to ensure that we support the states through this difficult period to enable them meet their salary obligations.
“The government is very committed to stimulating this economy and recognises that the ability of states to meet salary obligations is very important to getting the economy moving again, and so to that end, the president approved that deferral.”
Adeosun said states had been asked to submit financial data that would allow the federal government to work on a model and predict how much support in terms of loan deferrals to be given to get through this period until the economy begins to recover.
She said: “I want to emphasise that this is not a bailout, it is a deferral, postponement of deductions rather than a bailout just to allow the states to get the cash they need to meet their salary obligations.”