Government's borrowing from Pension Fund

Vice President Professor Yemi Osinbajo the other day told a conference that the Federal Government is in discussions with the National Pension Commission (PenCom) and some banks to borrow more money from the N9.03 trillion fund, and probably from the banks as well.

The purpose of the borrowing according to the Vice President is to fund infrastructure development to accelerate the country's economic development and improve the wellbeing of the citizens.

It is appropriate at this juncture to remind readers of these pages that any planned or intended borrowing by the Federal Government of Nigeria (FGN) from the money saved by current and future pensioners in the country will not be the first time of doing so.

It can be recalled that already the Federal Government has borrowed N6.16 trillion of the total N9. 03 trillion of pensioners money for various purposes, including the provision of critical infrastructure in parts of the country. PenCom said that N6.16 trillion represented 72.5 per cent of the fund as at December 2018. The money was borrowed by the Federal Government in the form of investment in the FGN securities during the period under review.

The National Pension Commission has always been involved in the infrastructure question in Nigeria and the role it can play in bridging the infrastructure gap. In November 2008, PenCom's pioneer Director General, M. K. Ahmad, presented a paper on the issue.

He said the country needed to pay urgent attention to its inadequate, misused and overused infrastructure in the areas of rail, roads, power and oil and gas. He even put a cost for the improvement of each of them in a scientific way.

The total cost based on his estimates 11 years down the line, was $100 billion. He broke it down thus: railway development $8-$17 billion; power $18-$20 billion; roads $14 billion and Oil and Gas, $60 billion. These sums are not easy to generate or raise by Nigeria at the urgent pace the infrastructure gap needs to be filled.

However, recourse to borrowing from liquid pension assets by governments to provide public goods is a common practice all over the world. This is to say that FGN's borrowing from the pool of money in Retirement Savings Accounts to finance the development of infrastructure is in line with the economic and financial culture in the world. It should not raise any alarm.

Indeed, reports indicate that the Federal Government is likely to borrow N1.7 trillion in the next few months to fund part of the 2020 federal budget, the sum of N850 billions of which would be borrowed from local financial institutions, including the pension fund raised by Retirement Savings Accounts holders. There are now about 8.79 million subscribers to the Contributory Pension Scheme.

One other fact about government's borrowing from the contributed pension fund is that several states in the country have borrowed over N151 billion therefrom to finance various projects for the wellbeing of the citizens.

An important point about borrowing money by the Federal Government is that it shows discipline and the avoidance of creating funny money through the mint, an option that could generate hyperinflation, destroy the Naira and cause economic crisis with its inherent negative impact on our collective well-being.

Given the devastating consequences funny money could have on the economy had it been considered as an option, subscribers to the Contributory Pension Scheme should be proud that their savings are saving the country from that path. Their money will now be deployed to national service without the possibility of default. On top of saving the country from borrowing abroad, the retirement savings account holders will have part of the profit from the lending paid into their accounts. They will also, like all other citizens, benefit from the infrastructure that would be provided using the money.