Risky plan to borrow from the pension fund | The Guardian Nigeria News

The federal government’s plan to borrow 620 billion naira in pension loans is not new; the idea was mooted about a year ago, but it seems to have suffered from a lack of effective implementation most likely due to the stigma of government credibility. It could also have shed light on the government’s caution in presenting the current attempt not as a direct proposal but as a scheme in which pension administrators can signal their willingness and authority to participate.

Like previous attempts, this current plan again faces a huge credibility problem for the government, given that its track record is not conducive to the trust of people, especially pensioners whose livelihoods depend on regular payment. of their pension. Moreover, the alarming level of lending burdening the government makes it unwise for the government to seek more loans due to the likely resulting difficulty in repayment. Above all, it is imperative that pension fund administrators, who in this case have the option of accepting or rejecting the government’s offer, exercise caution and diligence before joining; otherwise, they jeopardize the well-being of retirees.

According to reports, the federal government is planning to secure a $1.5 billion (620 billion naira) loan from pension funds to support its 7.73 trillion naira investment project in transport infrastructure over the next five years. Specifically, the government is seeking to secure the transport sector project finance facility between 2021 and 2025, hoping that the pension fund of over N13 trillion will grow at an average rate of 15% per annum over the course of the year. of the period.

These were included in the federal government’s “National Development Plan 2021-2025: Volume I”, which was launched recently. The government also revealed in the NDP document that the N7.73 trillion infrastructure spending would come from the capital market, the Presidential Infrastructure Development Fund portfolio, pension funds, among others. The government, however, said the proposed N620 billion facility would be based on the willingness of pension fund trustees to invest in the transport sector.

The NPD document said in part: “An additional $1.5 billion (620 billion naira) could come from pension funds, assuming that Nigeria’s pension fund assets, valued at more than N31.3 billion dollars in 2019, are increasing at an average rate of 15% per year over the five years. and pension fund administrators choose to invest in infrastructure funds and infrastructure bonds up to the thresholds they are allowed to do.

Normally, there should be nothing wrong with borrowing pension funds to carry out projects of public interest, especially on critical infrastructure. After all, it can be argued that the funds exist and should be used for a purpose, provided it is a productive purpose. In developed countries, such a practice is not strange; indeed, pension funds are known to be used or invested in real estate, banking and the insurance sector. The government, including the Nigerian government, is deemed financially sound enough to safely repay borrowed monies without unduly rocking the pension boat.

The problem with the Nigerian government is the uncertainty or opacity that will most likely follow the disbursement of borrowed funds. From the track record, it is common for funds to disappear without any trace of the projects they were supposed to be spent on. If this happens again, not only will repayment become difficult, but the future and the well-being of retirees could be jeopardized. Serious thought must certainly be given before subjecting retirees to such a risky undertaking. These are people who have spent the most useful period of their lives in service; and it is quite normal that they be allowed to enjoy the fruits of their labor, however meager it may be.

It is therefore not surprising that critics have widely welcomed the government’s proposal. Senior officials and pensioners kicked the plan. The workers, under the umbrella of the Association of Senior Civil Servants of Nigeria, have called on the government not to consider the idea, calling the proposal insensitive. ASCSN President Tommy Okon said: “Some pensioners are even complaining about late payments and you talk about borrowing from the pension fund.” The union also chastised the federal government for its borrowing spree, noting that it has put the nation under pressure.

Similarly, pensioners under the umbrella of the Nigeria Pensioners Union (NUP) stressed that the government should be careful when borrowing from pension funds. Reacting to the plan, NUP Information Officer Mr Bunmi Ogunkolade noted that pensioners could find themselves stranded if the government does not repay the loan. However, analysts believe that since the pension law allows PFAs to invest in federal government bonds, workers and pension unions may have no legal basis to prevent the government or the administration of pension fund to go ahead with the proposal.

Certainly, the government is under pressure from its 40 trillion naira debt which has caused President Muhammadu Buhari to borrow more than all former presidents combined. The 2022 budget deficit funding is N6.25 trillion, or 3.4% of Nigerian GDP and more than the 3% allowed under the Fiscal Responsibility Act. As the country borrows more, servicing the debt swallows up more of its resources, compounding the welfare problems of Nigerians. Worse still, federal and state governments are promising more taxes, including taxing commuters in Lagos and Buhari cutting oil subsidies. But the government’s failure to root out corruption in the public sphere remains a negative sign that will haunt potentially ambitious projects such as borrowing from pension funds to run vital infrastructure in the country.

A likely solution to the government’s incessant borrowing is of course to cut public spending. In the age of paperless administration, half of the civil service can be successfully retired without the system suffering. Ministries can be greatly reduced, as many simply duplicate the functions of others and some agencies.

The government should budget for the needs of Nigerians, not their wants. The Nigerian President does not need a fleet of planes. As a host to the poorest people on the planet, the Nigerian President cannot afford his current huge fleet of aircraft. The country should not borrow for mere indulgence. Thus, the government should abandon the idea of ​​borrowing from pension funds. And pension fund trustees have to be very careful, given the circumstances, before granting the government’s leniency, otherwise it makes the already pitiful situation of pensioners worse.

Dolores W. Simon