New Telegraph

Analysts expect FG to issue more promissory notes

The Federal Government is likely to issue more promissory notes to clear debt arrears, analysts at FBNQuest Research have said. The analysts made the prediction in a note titled, “More FGN Pro-note Issues to come,” obtained by New Telegraph yesterday. A promissory note is a financial instrument that contains a written promise by one party to pay another party either on demand or at a specified future date. In these parts, the Federal Government issues promissory notes to settle incurred local debts, and provide stimulus to the economy.

The FBNQuest Research analysts, who noted that an increasing share of the Federal Government’s domestic debt consists of its promissory notes issued to clear arrears, stated that: “These amounted to N972bn ($2.52bn) at end-ptember or about 6% of the burden.” They added: “After allowing for repayments already made on maturity of N187bn, the total hit could rise to a maximum of N2.7trn, subject to verification of claims by the Debt Management Office (DMO) and the National Assembly.”

Pointing out that the oil marketers stopped importing petroleum products because of the arrears, which consist largely of fuel subsidy reimbursements, the analysts further stated: “Notes have been issued for a total of N166 billion for non-oil exporters, which covers some non-payment of the export expansion grant. There has been a trend increase in non-energy exports from US$2.56bn in 2016 to US$10.32bn in 2019 although the negative impact of the Covid-19 virus is now visible.

“Arrears to local contractors have not yet been securitized in this programme. In the final 2020 budget we see a N8bn capital item for the FGN to settle the claims of such creditors. Under recurrent items we also note allocations to clear pension arrears due to military and civilian personnel, terminal benefits to former employees of the long-defunct Nigeria Airways and arrears in kind (vehicles owed to retirees). These allocations approach N50bn in total.”

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