The debt story behind FG's plan for unclaimed dividend, funds in dormant accounts

The FG is planning to take possession of unclaimed dividends and funds in dormant accounts to finance its bogus expenditure plan for 2021. The gravity of this intention would be better understood if we have an idea of how much are in dormant accounts and the size of the outstanding unclaimed dividend. 

According to the Nigeria Inter-Bank Settlement System (NIBSS), there are about 44.5 million dormant bank accounts in Nigeria. The balances in these accounts constitute roughly 2.5% of total bank deposits of nearly N30 trillion. When you do the maths, it means the total amount in dormant accounts nationwide stands at about N737 billion!

Similarly, the Securities and Exchange Commission (SEC) put the outstanding unclaimed dividend in 2019 at about N158.4 billion relative to N120 billion in 2018. Essentially, the potential amount of money the FG is targeting could hover around N890 – N900 billion. That could potentially be used to offset about 18% of the over N5 trillion fiscal deficit.

However, the government is not getting this money for free. Like every other government debt instrument, the money is being loaned to them and managed by the Debt Management Office (DMO) under the Unclaimed Funds Trust Fund. Owners of the dormant account or shareholders of unclaimed dividend can come out at any time to redeem their money. Interestingly, it is banks that this policy will affect the most as they would be starved of liquidity which they hitherto use to make more money for themselves at no cost whatsoever.

But the overarching issue revolves around the extent to which government will continue to borrow to sustain itself without devising appropriate long-term policy strategy to significantly cut cost of governance.

As at August 2020, Pension Fund Administrators (PFAs), through investment in different government-backed asset classes like FGN bonds, Sukuk Bond, TBs etc. has lent the FG about two-third of the over N11 trillion pension fund assets. And unconfirmed reports last month reveal that state governments are looking at borrowing up to N17 trillion from the pension fund.

Adding to the debt gloom is a recent report by the DMO that Nigeria’s public debt has soared to more than N30 trillion as at June 2020. Debt service to revenue ratio as at 2019 stands at about 60% (see chart) and was as high as 99% in the first quarter (Q1) of 2020. More than one-fifth (c.24%) of the 2021 budget of N13.05 trillion would be spent servicing debt. The question then is: How sustainable is our debt?

The parameters are not in order at all - revenue mobilization is weak and tax base is narrow, expenditure keeps expanding and key macroeconomic indicator like inflation and exchange rate is messing with us all. Daily I cringe in fear as the legendary Sunny Okosun's immortal song, "which way Nigeria?" plays non-stop in my head.