Domestic Debt: FG to Issue Promissory Notes to Contractors in 2017

Ndubuisi Francis in Abuja

In a move to reduce the huge debts owed local contractors and motivate them for optimal performance at the various project sites across the country, the federal government is planning to introduce the issuance of promissory notes in 2017.

A promissory note is a debt instrument, similar to Sovereign Debt Note (SDN), which was issued to oil marketers by the previous administration to encourage them to import petroleum products.

Like the SDNs, promissory notes are discountable at the Central Bank of Nigeria (CBN).

THISDAY gathered from a top official in the Ministry of Finance that given the level of the federal government’s indebtedness to local contractors, a move towards issuing promissory notes to them next year was in the offing.

This, he added, would be included in the 2017 budget.
According to the source, despite the funds released to contractors so far, the required impact was not being felt vis-à-vis the resumption of construction at various states of the federation.
The source pointed out that when the first capital release was made to the contractors from the 2016 budget, “it was swallowed by the banks due to the piled up debts”.

The source added that it was the release of the second tranche to contractors that inspired some confidence in them that the government was serious about defraying its huge debts to them.
The finance ministry official disclosed that with the $600 million budget support loan just released by the African Development Bank (AfDB), more money would by paid to local contractors, which he added would begin to impact on the economy as it trickles down.

“But going forward, in the 2017 budget, we are introducing promissory notes similar to Sovereign Debt Notes,” the source said.

Underscoring the need for the introduction of promissory notes next year, he stated that in 2012, the Goodluck Jonathan administration issued N364 billion worth of promissory notes to contractors, adding: “We will continue with that to contractors to ensure that they pay their staff and move to site, and this would impact positively on the economy in the short to medium-term.”

However, the official noted that the cost of the projects that would qualify for promissory notes issues would be quantified and reviewed by the Ministry of Finance, adding that there was a likelihood that some of the projects could have been over inflated, having been carried over from the previous administration of President Jonathan.

The Minister of Power, Works and Housing, Babatunde Fashola, had earlier in March disclosed that the federal government owed N1 trillion to road contractors handling over 200 on-going projects across the country.

Also, figures released by the Debt Management Office (DMO) indicated that of the nation’s N16.29 trillion debt as of June 30, 2016, the domestic debts of the federal government alone stood at N10.61 trillion, up from N8.4 trillion a year ago.

The bulk of the federal government’s domestic debt is owed to contractors.
Of the N753,633,667,464 capital releases from the 2016 budget so far, N209,246,760,165 has gone to the Ministry of Works, Power and Housing.