Budget Deficit: FG Borrows N4.73tn via Bond Market in Eight Months

Kayode Tokede

In the bid to bridge the 2024 budget deficit, the federal government, through the Debt Management Office (DMO), has borrowed a whooping N4.73 trillion in eight months using the Bond market, market data has revealed.

Analysis of the FGN bond issuance data showed that between January and August 2024, the DMO offered to raise N5.15 trillion, but got N5.64 trillion total subscription.

President Bola Tinubu had in his budget presentation at the joint session of the national assembly in November 2023, titled, “Budget of Renewed Hope” stated that 2024 budget deficit is projected at N9.18 trillion or 3.88 per cent of Gross Domestic Product (GDP).

“This is lower than the N13.78 trillion deficit recorded in 2023 which represents 6.11 per cent of GDP. The deficit will be financed by new borrowings totalling N7.83 trillion, N298.49 billion from Privatization Proceeds and N1.05 trillion drawdown on multilateral and bilateral loans secured for specific development projects,” he added.

Since the beginning of 2024, THISDAY gathered that investors have shown interest in the long-term FGN Bond, a major factor contributing to the amount raised in the period.

The eight months auction by DMO revealed a shift in investor preferences towards higher-yielding and longer-tenor bonds, amidst a backdrop of cautious market sentiment.

The DMO between January and August 2024 has continually re-open some FGN Bonds and steadily hike its interest rate to attract investors amid double-digit inflation rate.

The FGN bond market this year consistently witnessed increased participation by Pension Funds Administrators (PFAs) as double-digit inflation rate eroded investment in money and capital market instruments.

According to National Pension Commission (NAICOM), pension funds industry portfolio in the FGN Bonds increased to N12.22 trillion as of June 2024, contributing about 59.66 per cent of the N20.48 trillion of the industry assets.  

In the latest auction for August 2024, the DMO disclosed that it has raised N374.751 billion for the federal government, of which it offered N190 billon to investors. The month under review recorded N460.182 subscription as rate on the three auctions stood above 20 per cent.

The N190 billion raised from the bond market in August 2024 marks its lowest bond offer in 2024, as this offer amount is 37 per cent less than the N300 billion it offered July 2024.

These bonds, which were originally issued in earlier years, are being offered to investors once again under attractive terms designed to ensure strong participation.

The bonds include a N70 billion reopening of the 19.30% FGN APR 2029, a 5-year bond that will mature in April 2029.

Also, the DMO offered another N70 billion through the 18.50% FGN FEB 2031 bond, which is a 7-year instrument maturing in February 2031 and the third bond in the offering was the 19.89% FGN MAY 2033, a 9-year bond with a reopening value of N50 billion, set to mature in May 2033.

Finance analysts attributed the strong demand for FGN bond to attractive yield, which offers investors high returns on their investments, stressing that the oversubscriptions also revealed that investors have confidence in the federal government’s ability to meet its debt obligations.

The Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf had stated that the federal government notified the general public of borrowing more in 2024.

He said, “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.”

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

“But some analysts attributed the under subscription to some issuances to fear of interest rate risk, “as investors are full well informed that economy is still very much challenged and that inflationary pressure remains unabated.

“So, investors expect higher yield for this particular issuance, while the government does not wish to borrow at higher interest rate,” said CEO, Wyoming Capital and Partners, Mr. Tajudeen Olayinka.

Meanwhile, in recent years, Nigeria’s rising debt profile has been a topic of concern, as Vice President, Highcap Securities Limited, Mr. David Adnori, warned that the country’s debt levels are unsustainable.

According to Adnori, “Ways and means” refer to the CBN’s lending to the federal government. The DMO said that the “securitization of ways and means” is not unusual and is a common practice in many countries, but it is not a decision that can be made by the DMO alone.” Adnori expressed concerns that Nigeria’s rising debt levels could become unsustainable if not managed properly.