DMO’s Plan to Raise N940bn from Domestic Market Suffers Setback

Eromosele Abiodun

The devaluation of the naira following the flexible exchange rate regime by the Central bank of Nigeria (CBN) and the plan to repay N560billion to bondholders will impede the Debt Management Office (DMO)’s plan to raise the N940 billion net domestic borrowing requirements in the 2016 budget, THISDAY finding has revealed.

The DMO on Monday issued its provisional issuance calendar for third quarter of 2016 where it plans to raise between N305billion ($1.08 billion) and N405billion ($1.43 billion) over the quarter.
Analysis of the provisional issuance calendar showed that the amount it plans to raise in Q3 marks a pick-up from Q2 when it raised N265billion.

However, it has to repay N560billion to bondholders on the maturity of the Aug ‘16s and meet the N940billion net domestic borrowing requirement in the 2016 budget, which requires fine-tuning as a result of the naira devaluation.

Analysts believe the increase in supply, together with rising inflation point to yield widening, adding that the Pension Fund Administrators (PFAs) will again to be prominent buyers at the auctions.

“Data from National Pension Commission (PenCom) for March show their holdings of the Federal Government of Nigeria (FGN) bonds at N3.24trillion ($11.45billion), equivalent to 59.3 per cent of their assets under management (AUM). Additionally, they held N450billion in Nigerian Treasury Bills (NTBs) and N150billion in state government bonds.

“As for offshore buyers, we could see some interest from investors with risk appetite who convert funds in the lengthy repatriation process into buying orders. The same process has reportedly been seen with equities. The DMO is launching a new five-year benchmark this month. Its other offerings are the re-openings of the ten-year (Jan ‘26) and the 20-year (Jan ’36) benchmarks, “said analysts at FBN Quest.

The Director General of DMO, Dr. Abraham Nwankwo had in a chat with newsmen recently said the DMO was committed to making sure that Nigeria raises money to fund the 2016 budget deficit from appropriate sources and through appropriate mix during the fiscal year to make sure that capital projects are funded.

Nwankwo stressed that the Nigerian debt level was highly sustainable, noting that the nation still had a lot of idle potential, which the administration is striving to harness for effective growth of the economy.

He disclosed that while comparative tax revenue to Gross Domestic Product (GDP) ratio of Nigeria is less than 7.0 per cent, its peer group has a ratio of 18 per cent.
He therefore stressed the need to widen the tax net to generate more revenue for the government.

“Nigeria’s debt to GDP ratio is 13 per cent, compared to the 56 per cent of peer group. So in that essence, our debt is still very sustainable. In this respect, I am encouraging all Nigerians to continue to make sure that they pay their taxes fully as and when due because our tax revenue to GDP ratio is relatively low compared
to countries in our peer group,” he said.
He said full payment of taxes by individuals and corporate bodies would enhance debt and overall economic sustainability of the country.