FG To Raise N225bn New Bonds From Investors

The federal government will today conduct its regular primary auction of new bond issuances with a view to raising additional N225 billion from the domestic capital market.

Investment firms at the weekend doubled up efforts at pre-auction marketing of the new issuances with tallies surveyed across many firms indicating that the new issuances may be oversubscribed.

The government had in the past two months raised more than N450 billion from the domestic capital market through bond issuances.

Prospectus issued by the Debt Management Office (DMO), which oversees federal government’s debt issuances and management, indicated that the government would be raising N225 billion through reopening of three previously issued mid-to-long term bonds.

The bonds being reopened include the 13.53 per cent 10-year bond, which matures in March 2025. Also being reopened is the 10-year, 12.50 per cent bond, which matures in April 2032 and the long-term 20-year bond with initial coupon of 13.00 per cent and maturity date of January 2042. The previous stop rates for the bonds are 11.00 per cent; 13.00 per cent and 13.749 per cent respectively.

The government plans to raise N75 billion each from the three bonds, totaling N225 billion. Nigeria depends on regular debt issuances to finance budget deficits as poor infrastructure and insecurity continue to threaten government’s revenue.

The DMO had reported that Nigeria’s total public debt stock increased to N41.6 trillion or $100.07 billion by the end of first quarter 2022, 5.16 per cent or N2.04 trillion increase on N39.56 trillion or $95.78 billion recorded as at December 31, 2021.

The total public debt stock included domestic and external debts of the federal government, state governments and the Federal Capital Territory.

The DMO noted that the total public debt stock included new domestic borrowing by the federal government to finance the deficit in the 2022 Appropriation Act, the $1.25 billion Eurobond issued in March 2022 and facilities by multilateral and bilateral lenders.

Data from the Central Bank of Nigeria (CBN) indicated that loans to the federal government through the apex bank’s ways and means rose from N17.46 trillion in December 2021 to N19.01 trillion in April 2022, representing an increase of N1.55 trillion over the four-month period.

Section 38 of the CBN Act, 2007 allows the apex bank to grant temporary advances to the federal government with regard to temporary deficiency of budget revenue at such rate of interest as the apex bank may determine. However, the total amount of such advances outstanding shall not at any time exceed five per cent of the previous year’s actual revenue of the Federal Government.

Analysts at Afrinvest estimated that at the current pace of borrowing, Nigeria’s debt-to-GDP ratio would surpass the DMO’s benchmark of 40 per cent by 2030, factoring in inflation and exchange rate risks on domestic and foreign borrowings accordingly.

Analysts noted that debt service-to-revenue ratio had reached an all-time high of 96.0 per cent in 2021 as against 30.9 per cent, before moderating slightly to 85.8 per cent in first quarter 2022, indicating worsening illiquidity.

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Analysts said deficit financing and surging debt numbers have plunged the Nigerian economy “deeper into the rabbit hole” as the debt-to-GDP ratio spiked to 23.3 per cent in first quarter 2022 from 21.6 per cent at the beginning of 2021 or 13.2 per cent in 2015.

Senior Research Analyst, FXTM, Mr. Lukman Otunuga, said Nigeria’s rising budget deficit poses a major threat to the country’s long-term economic outlook.

According to him, growing fiscal deficit and resultant debts portfolio could undermine economic sustainability with wide ramifications of unemployment, devaluation, greater vulnerability and increased fiscal crisis among others.

In a review, Otunuga said Nigeria’s ballooning debt profile has become a perfect example of how excessive government spending can place an economy in an unfavorable position, despite its mission to stimulate growth.

According to him, there is almost a global consensus that Nigeria’s rising budget deficit threatens its long-term outlook.

He noted that over the past 10 years, Nigeria, Africa’s largest economy, has been spending beyond its revenues with the International Monetary Fund (IMF) forecasting the government deficit to widen to 6.4 per cent of Gross Domestic Product (GDP) in 2022 from 6.0 per cent in 2021.

He pointed out that while Nigeria’s total public debt is expected to reach 44.2 percent of GDP by 2027, one of the primary dangers of a budget deficit is the continued increase in prices.

“If the deficit forces the Central Bank of Nigeria (CBN) to release more money into the economy, such could feed into inflationary pressures – threatening economic growth. It does not end here; the ballooning debt lowers Nigeria’s national savings, encourages spending cuts, decreases the ability to respond to domestic and external shocks, and most importantly increases the risk of a fiscal crisis,” Otunuga said.