FG Seeks To Borrow N360bn In New Bond Auction
The Federal Government will today raise about N360 billion in new borrowings as part of its regular debt issuance to finance budget deficit and augment national revenue. It is the last bond auction by the outgoing government of President Muhammadu Buhari.
The auction, which is based on issuance calendar by the Debt Management Office (DMO), which oversees the government’s debt issuance and management, however, comes as the DMO at the weekend, expressed concerns that the country’s debt servicing is becoming unsustainable.
At the auction, the DMO will be offering four tenors of bonds to raise N90 billion on each tenor, totalling N360 billion. Market pundits expected the offers to be oversubscribed and government to allot more than initial targets, in line with the recent subscription and allotment patterns.
The bonds on offer, which are reopening of previous issuances, include the 10-year, 13.980 per cent February 2028 bond; the 10-year, 12.50 per cent April 2032 bond; the 20-year, 13 per cent January 2042 bond and the 30-year, and 12.98 per cent, March 2050 bond.
In an ironical twist, the DMO raised the alarm that Nigeria’s debt service is unsustainable.
The DMO was reacting against the background of a recent statement by the Director-General (DG) of the Budget Office of the Federation, Mr. Ben Akabueze, who reportedly said Nigeria has a “limited borrowing space” due to its poor debt-to-revenue ratio.
DG, Debt Management Office (DMO), Ms Patience Oniha, in a chat with The Nation, pointed out her position on the matter with reference to her past arguments.
According to Oniha, “We do not recommend that the government continues to borrow in our current levels of debt services because public debt could become unsustainable”.
Oniha lamented that the country’s debt stock “has been growing because of our borrowings in the annual budget and new borrowings approved under the medium term external borrowing plan”.
Another reason for the high borrowing, she pointed out, was “when the country went into recession based on the economic growth and recovery plan to bring the economy out of recession”.
She insisted that the government should “only borrow for priority projects that could generate revenue”.
Oniha advocated “reduction in new borrowings by actively using public private partnerships arrangements to finance capital projects”.
The DG also argued that “medium to long-term loans are not advisable to fund the government projects, it has to be through available revenue, then borrowing can be for special purposes”.
Oniha was baffled that the debt-to- Gross Domestic Product (GDP) ratios of other countries like the United States and the United Kingdom compared to Nigeria’s were high. According to her, “this means that our numbers are not adding up because of low revenue generation”.
With the Buhari administration amassing debts in its last days, it has been suggested that the government will bequeathe a N77 trillion debt to the incoming government.
Last week, Akabueze had argued: “We have limited space to borrow. When you take how much, you can generate in terms of revenue and what you can reasonably borrow, that establishes the size of the budget. The next thing would be to pay attention to the government’s priority regarding what project gets what.”
The DG Budget Office of the Federation had warned that “trouble” looms for the country if it exceeds its borrowing limits”.
Nigeria has applied to the World Bank for $800 million for the National Social Safety Net Programme intended to expand coverage of safety net support among the poor and vulnerable Nigerians. This will assist them in coping with the costs of meeting basic needs.
The Federal Government had borrowed more than N3.17 trillion in the first quarter of this year, in its most aggressive fund-raising in recent period.
Data obtained by Economic Confidential had shown that the government had raised N3.17 trillion in the first three months of the year through the issuance of regular bonds, retails savings bonds and treasury bills at the domestic capital market.
The borrowings in first quarter of the year represented a double of government’s borrowings in fourth quarter of last year and remain the largest debt issuances over the past 10 quarters tracked by the Economic Intelligence Team.
The data indicated a consecutive monthly increase in borrowings in first quarter of the year with the government raising its initial offer sizes in most instances to mop up oversubscriptions to its offers.
A monthly breakdown showed that the government raised a total of N940.62 billion last January. It increased borrowings to N1.035 trillion the following month and closed the quarter with total borrowings of N1.196 trillion in March.
With sovereign downgrades by global rating agencies and attendant higher risk profile as well as cost of international debt issuances, the government had been constrained to the domestic capital market to fund its budget deficit. The government plans to raise N8.8 trillion through regular debt issuances to fund the N10.78 trillion budget deficit in 2023.
In January, this year, the government raised N662.617 billion, through its regular bond auction, N277.468 billion through the Nigerian Treasury Bills (NTBs) and N533.03 million through the Federal Government of Nigeria Savings Bonds (FGNSBs), a retail monthly debt issuance introduced in 2017.
In February 2023, the government raised N770.56 billion through bond auction, N263.50 billion through NTBs and N1.271 billion through the FGNSBs.
The government issued regular bonds worth N563.36 billion, NTBs valued at N631.84 billion and FGNSBs worth N1.01 billion in March 2023.
The DMO had said the domestic debt issuance was designed not only to provide funds to finance budget deficit but also refinance federal government’s maturing obligations during the fiscal year.
According to DMO, funds raised are deployed for deficit financing as well as refinancing maturing obligations.
DMO’s latest official national debt position indicated that Nigeria’s total public debt stood at N46.25 trillion by the end of fourth quarter 2022.
The federal government laid out a budget size of N20.51 trillion on a total revenue of N9.73 trillion in 2023, with plans to borrow N10.78 trillion in 2023.
Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, at the public presentation of the breakdown and highlights of the 2023 budget proposal, said the overall budget deficit of N10.78 trillion for 2023 would largely be financed through domestic loans.
She outlined that the budget deficit would be financed mainly by borrowings including domestic sources, N7.04 trillion; foreign sources, N1.76 trillion; multilateral and bi-lateral loan drawdowns, N1.77 billion and expected N206.18 billion proceeds from privatization of national assets.
Ahmed had raised the possibility of higher budget deficit and financing in 2023, noting that “there is a continuing need to exceed this threshold considering the existential security challenges facing the country”.
She however said Nigeria has no plan to restructure its debt as government remains committed to meeting its domestic and external debt obligations.
According to her, government will continue to utilize appropriate debt management tools to streamline the cost and risk profile in the debt portfolio, including through concessional loans, spreading out of debt maturities to avoid bunching, and re-profiling of the debt maturities by refinancing short-term debt using long-term debt instruments.
Nigeria has increasingly relied on borrowings to bridge its dwindling national revenue
Data provided by the Budget Office of the Federation showed that Nigeria has consistently over the past eight years significantly underperformed its revenue target. For instance, while the country had budgeted a revenue target of N7.2 trillion in 2018, it generated only N3.9 trillion, about 54 per cent of revenue target. In 2019, it achieved about 59 per cent with revenue budget of N7 trillion and actual of N4.12 trillion. Revenue target and actual stood at N5.4 trillion and N3.96 trillion and N6.64 trillion and N4.64 trillion in 2020 and 2021 respectively. In the current budget, while the country had set a revenue target of N5.82 billion, it only achieved 63 per cent or N3.66 trillion by July 2022.
Nigeria has been using more than three-quarters of its revenues to service debts. Debt-service to total revenue ratio stood at 61.3 per cent in 2020, rose to 90.9 per cent in 2021 and currently stands at 84.5 per cent. Debt-service-to-total revenue was about 32.7 per cent in 2015.
