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The new law applies to bank accounts that have been dormant for six years, and to dividends that haven’t been claimed for a similar length of time. It, however, exempts bank accounts owned by the ministries, departments, and agencies of Federal, State, or Local Governments. The Unclaimed Funds Trust Fund is to be supervised by the Debt Management Office (DMO) and presided over by a governing council chaired by the Minister of Finance. Council members will also include the CBN Governor, MD of NDIC, the DG of the SEC, and representatives of the Bankers Committee and Shareholders Association. Companies or banks that fail to comply with the new regulations may face a fine that is five times the value of the funds they did not remit, plus the interest accumulated on such funds. However, bank account owners and shareholders claim the borrowed funds with interest where it accrues, at any time.
Why This Is Significant
This isn’t the first time the Federal Government would moot the idea of borrowing from funds owned by private individuals and businesses. In December, the Nigerian Governors’ Forum endorsed a plan to borrow ₦2 trillion from funds belonging to the Contributory Pension Scheme. Several commentators raised concerns about the use—and possible misuse –of the retirement funds of millions of Nigerians. But the provisions of the Finance Act have a somewhat different feel to them. The act doesn’t just authorize the government’s borrowing from private accounts and dividends; it also prescribes penalties for entities that do not yield to the government’s demand for funds from these sources.Find our comprehensive listings of businesses in Nigeria here
Concerns about infringements on the right of account owners and shareholders may be mitigated by the fact that they are allowed to claim their funds at any time. But this doesn’t dowse tensions around the new rules; trust in the government’s ability to engage fairly with the companies and banks involved is far from universal. The Federal Government is walking an increasingly tight rope with its finances. Revenues (predominantly from oil) are down, so it has to find other ways to support its operations. Borrowing directly from its citizens seems to be an option it’s willing to explore.
Possible Effects of the New Rule on Government Borrowing
It’s not clear how much money the government could access given the new rules. But anecdotal evidence suggests that it’s a very large amount. Experts have long spoken about value ‘tied up’ in dormant assets across Nigeria; some of these may now be going into public coffers. This means more resources for the government to finance much-needed infrastructural projects. Whether it does deploy the new funds efficiently is, of course, a different matter. It’s possibly also a disincentive for letting bank accounts lie fallow. News of the government’s plans to mobilize unused funds from this source may spur many to get their accounts active again. In the most optimistic scenario, this may encourage people to invest the once dormant funds in productive economic activity— something policymakers would cheer. Deposit money banks could be impacted to some degree by this move. With the government drawing more money from them, their deposit portfolios will shrink, leaving them less liquid and less able to invest in businesses. If this occurs on a large enough scale, it could limit the growth of the private sector.A Path to Sustainable Domestic Borrowing
Government finances aren’t in very good shape at the moment. But this doesn’t erase the need for engagement with citizens before enacting a plan that involves borrowing from them. As previously mentioned, there’s a fear that public sector borrowing could wind up stifling the private sector. This is a long-running problem, one that the government has to address. It can do this by introducing more business-friendly policies (including cutting red tape and unnecessary levies), and by ensuring that public spending achieves infrastructural development that enables businesses to thrive. Featured Image Source: The Cable NGGot a suggestion? Contact us: editor@connectnigeria.com
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