Some
questions that arise include: what is the nature of the road contracts? Was due
process followed in awarding the contracts? Does the amount already paid
represent real value to the extent the projects have been executed? Since the
projects are still ongoing, is the amount being owed really due for payment? If
the debt is paid in full today, what would happen to the uncompleted parts of
the projects?
All these
notwithstanding, this is a very substantial debt burden that mirrors the poor
priority government over the years have attached to road infrastructure
development or maintenance. This level of indebtedness, of course, can lead to
abandonment of the projects, cost inflation, poor execution of the projects,
disengagement of workers thereby exacerbating the unemployment situation and
even litigations.
Furthermore,
if the contractors borrowed money from banks to ensure progress of work on the
projects, the consequences of non-payment by the government become
hydra-headed, especially as the contractors would be unable to repay the
borrowings from banks.
When that
happens, the amount of interest charges may not only over-run the entire
contract amount but may necessitate the lending banks making substantial
provisions for non-performing loans or outright bad debts. The capacity of the
banks to extend credit facilities to other needy economic agents will therefore
be curtailed. Most assuredly, the stability of the banking system may become
impaired with grave adverse consequences such as bank distress and/or failure,
disengagement of employees, loss of investments by investors and hard-earned
deposits by customers.
At this
point in time when the Nigerian economy is plunging into a dangerous and
unacceptable depth, and indeed, at any other time for that matter, any case of
bank distress or failure will be like driving a six-inch nail into the heart of
the banking system. That will be enough to dislocate the economy further and
disenable such noteworthy and audacious government programmes as cashless
Nigeria and financial inclusion as well as calls for more bank credits to the
real sector and small and medium scale enterprises.
But before
the acceptance of the position that the government is owing road contractors as
much as N1 trillion, an amount more than enough to meet minimum capital
requirement of all the commercial banks in the country, it is absolutely
exigent to evaluate the contracts in terms of authenticity, level and quality
of performance vis-a-vis the amount already paid, outstanding work to be done
to bring the projects to full completion. Undertaking such evaluation, once again,
will show if the country has received value for the N2.0 trillion already
expended and whether the outstanding debt has fallen due for payment. The need
for such evaluation is also to ensure the debt did not arise as a result of the
widespread corruption and lack of transparency in almost all facets of
government business and indeed, across the economy.
Once the
indebtedness is verified and due for settlement, the projects fully completed,
it is strongly advised that the government should, without further delay, meet
its obligation to the contractors. If, however, it is only a part of the debt
that is due for payment as a result of level of completion, the government
should settle what is certified due. In turn, the contractors should quickly
complete these projects that form part of the needed infrastructure that will
give the economy some fillip. They should also meet any obligations owed their
banks and other creditors.
It is
imperative to observe that the challenge of huge government’s indebtedness to
road contractors, once again, raises the need for government to reform
classification, financing and management of road projects in Nigeria and
establish a Federal Roads Authority, with the responsibility of resolving all
road-related issues. Actualisation of these long outstanding canvassed
necessaries, that had been repeated over and over again, will facilitate
streamlining of responsibilities, accountability and prevention of such
unhealthy situations as government becoming a chronic debtor to its contractors.
Finally, it
is worth re-emphasizing that Nigeria cannot afford any form of instability in
the banking or any other sector at this crucial moment of gravel challenge to
the economy. It must be understood that, if the said N1.0 trillion debt is not
urgently verified and settled, it can induce such preventable instability,
especially in the banking sector where the deposit gaps resulting from
implementation of Treasury Single Account (TSA), are yet to be fully covered
and the level of non-performing credits is rising. (Guardian)
No comments:
Post a Comment