In 5 Months, FG Raised N5.58trn Via Saving Bonds To Fund 2022 Budget Deficit

To bridge the 2022 N6.26 trillion budget deficit, the federal government through the Debt Management Office (DMO) in the first five months of 2022 raised a total of N5.58 trillion through Saving Bond.

In the first five months of 2021, a total of N4.04 trillion was raised through the FGN Saving Bond despite low- yield on interest rate.

The debt office in 2017 launched FGN Saving Bond for retail investors that guaranteed interest payment and repayment of the principal.

According to the guidelines, retail investors looking to invest in the FGN Saving Bond only need a minimum of N5,000 to invest. Subsequent investment over N5,000 will be in multiples of N1,000. Meaning that investors cannot invest N5,500 or N12,700. It’s either N6,000 or N13,000 or N30,000. The maximum amount a single retail investor can invest in the FGN Saving Bond is N50 million.

The bonds have a tenor of 2 and 3-year respectively. Meaning that investors can either invest in an FGN Savings Bond with a duration of 2-year or one with a duration of 3-year and the interest rates are determined by the DMO.

According to findings, the interest rate on FGN Saving Bond in 2022 moved from 7.542% FGNSB JAN 2024 8.542% FGNSB JAN 2025 FGN Saving Bond in January to 9.470% FGNSB MAR 2024 10.470% FGNSB MAR 2025 in March 2022.

The interest rate dropped in May on 7.934% FGNSB MAY 2024 and 8.934% FGNSB MAY 2025 FGN Saving Bond as announced by the DMO.

Interestingly, interest rate on FGN Saving Bond was hovering around 8.7 per cent and two per cent highest and lowest in 2021, respectively.

The federal government had announced that its 2022 budget has a deficit of N6.26 trillion, forcing the federal government to issue new borrowings of N5.012 trillion (of which domestic – N2.506 trillion and foreign – N2.506 trillion); drawdowns on Project-tied Multilateral/Bilateral loans – N1.156 trillion; and Privatisation Proceeds of N90.73 billion.

According to DMO, N537.6billion was the total amount allotted in January 2022 in two offers for subscription. The DMO noted that there are 2-year and 3-year savings bonds, with interest rates of 7.542% with allotted of N154.207million and 8.338per cent with an allotted amount of N383.442million , respectively.

For February, the debt office disclosed a total allotted amount of N646.798million (N163.689 million for 7.220% FGNSB FEB 2024 and N483.109 million for 8.220% FGNSB FEB 2025) , noting that there are 2-year and 3-year savings bonds.

A breakdown of the February Saving Bonds shows that the 2-year FGN savings bond will be due on February 16, 2024, at 7.22% per annum and the 3-year FGN Savings Bond which will be due on February 16, 2025, at 8.22% per annum.

However, in March, the total amount allotted moved significantly to N2.15trillion when the DMO allotted N626.544 million with interest rate of 9.47 per cent and maturity date on FGNSB MAR 2024 and N1,527.278 million with interest rate 10.47 per cent

In addition, the DMO allotted a sum of N1.14trillion and N1.11trillion in April and May 2022 respectively.

The debt office had announced that it is offering on behalf of the FG two more Savings bonds for subscription in May and the first offer is a 2-year FGN savings bond which will be due on May 18, 2024, at an interest rate of 7.93per cent per annum.

The second one is a 3-year FGN savings bond which will be due on May 18, 2025, at 8.93 per cent annum.

Economic Confidential had reported that the federal government borrowed a total of N984.28 billion through FGN bonds between January and April 2022, according to DMO monthly auctions.

The appetite for FGN bonds indicates that Pension Funds Administrators (PFAs), and Nigerian investors prefer investment instruments with less volatility that assures them of their capital returns albeit with low yield on investment.

The Head, Equity Research, FBNQuest , Tunde Abidoye in a statement explained that bonds by federal government are oversubscribed over current liquidity surplus in the financial system, stressing that institutional investors continue to look for new avenues to invest funds from maturing securities, coupons and dividend receipts, and new AUMs generated.

According to him, “This is in addition to the fact that FG bonds are essentially risk-free. Notably, Nigerian pension funds are willing takers of FGN debt. Based on PenCom’s latest report for March, the share of FGN debt securities in the asset mix of Nigerian Pension funds was around 61.3per cent.

“Nigerian pension funds have historically favored government debt as an asset class due to the paucity of good quality investible securities available to them. Other related reasons include the relative lack of depth of the equities market, portfolio safety considerations, and strict investment guidelines by the industry regulator.

“Unlike peer countries, PFAs’ exposure to infrastructure funds and real estate properties was paltry at N75billion and N156billion respectively, or mere fractions of their total AUM size of N13.9trillion.

“For context, the Retirement Benefits Authority of Kenya puts the share of government securities at 44.1per cent as at end-June ’21.

“The equity portion of the portfolio also amounted to 16.9% compared with c.7per cent for Nigeria. For Kenya, the Pension Funds share of immovable property was 16.7 per cent, this compares with around 1.7per cent for Nigeria.

The Federal Government’s (FG) rapid borrowing raises concerns about the growing stock of public debt, which presently stands at about N40trillion or $96billion, as well as debt sustainability.

“The issue also raises concerns about the government’s escalating debt servicing costs, which accounted for almost 76 percent of overall revenue in the 11 months leading up to November 2021.

“This leaves the FG with very little cash to spend on vital items (i.e. capex, health, and education) and creates a significant debt servicing burden for a developing country like Nigeria.”

Speaking on the development, an economist and Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, said the FG had notified the general public of borrowing more in 2022.

“Since we have a deficit of N6.3trillion and you also have an additional subsidiary budget of N4 trillion, naturally it has soar up the deficit and it is easier to raise money locally than raising it at the international market. Domestic borrowing is a low- hanging fruit.

“With all the volatility and foreign exchange issues, it makes sense to borrow at the domestic market rather than borrowing from the international market. It is all a reflection of our macro economy environment challenges and weak fiscal policy of the government. All this borrowing also is a reflection of the weak financial position of the government and it will continue like that.”

He noted that the oversubscription to FBN bond is a lucrative investment, stressing that the low risk involved attracted investors.

He added that, “Anything sovereign has the lowest risk and nothing will go wrong with it except the country is collapsing completely. All over the world, sovereign bonds have the lowest risk and secondly it is an investment outlet for investors to invest their money.”