Budget Deficit: FG Raised N5.28tn via Bond in 10 Months

Kayode Tokede

The federal government through the Debt Management Office (DMO) has raised N5.28 trillion through the FGN Bond market in the last 10 months of the year to bridge the 2024 budget deficit.

The monthly results of the FGN auction conducted by the debt office revealed that investors, between January and October 2024, were offered an estimated N5.48 trillion as its total subscription stood at N6.44 trillion in the period under review. 

An FGN Bond is a type of debt instrument issued by the FG to raise funds for financing public projects and managing the national budget. Basically, it is a way for the government to borrow money from investors, with a promise to pay back the principal amount (the face value of the bond) at maturity, along with periodic interest payments, known as the bond’s coupon rate.

THISDAY gathered that investors, since the beginning of 2024, have shown interest in the long-term FGN Bond, a major factor contributing to the amount raised in 10 months of 2024. 

The 10 months FGN auctions by DMO revealed a shift in investor preferences towards higher-yielding and longer-tenor bonds, amidst a backdrop of cautious market sentiment.

The consistent demand for FGN bond is coming on the backdrop of inflationary pressures facing Nigeria, as most long-term auctions in the period under review attracted robust investor interest, resulting in a higher allotment.

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

From the FGN bond auctions, THISDAY gathered that DMO recorded the highest amount offered in February 2024, about N2.5 trillion, but settled for N1.49 trillion with a subscription level at N1.9 trillion, as September 2024 auction recorded the lowest- N150 billion offered amount that showed N264.53 billion and N414.88 billion allotted and subscription amounts, respectively. 

The FG’s 2024 budget includes a significant budget deficit, reflecting the gap between the government’s projected revenues and expenditures for the year.

According to the proposed budget for 2024, a total budget size of N27.5 trillion, and a budget deficit of N9.18 trillion, as presented by President Bola Ahmed Tinubu in November 2023.

Budget deficit is projected at N9.18 trillion in 2024 or 3.88 per cent of 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,” President Tinubu stated this while presenting 2024 budget of renewed hope at the joint session of the national assembly. 

However, the latest auction for October 2024, showed that DMO on behalf of the FG raised N289.6 billion, about 9.5 per cent increase when compared to N264.53 billion in raised in September 2024.

The high level of participation in October 2024 reflects investors’ sustained appetite for longer-dated instruments, which offer better returns in a rising interest rate environment.

The auction, held on October 21, featured two re-opened tranches of existing bonds: the 19.30 per cent FGN APR 2029 (5-year bond) and the 18.50 per cent FGN FEB 2031 (7-year bond).

The government initially offered N180 billion in the October auction, with N90 billion allocated to each bond. This was slightly lower than the N190 billion offered in September, which was distributed across three bonds—the 5-year, 7-year, and 9-year tenors.

The 5-year bond (APR 2029) attracted N60.737 billion in subscriptions, while the 7-year bond (FEB 2031) saw a significant jump in bids, totalling N328.584 billion.

Out of the total bids received, N57.237 billion was allotted from the 5-year bond, while N232.360 billion was allocated from the 7-year bond.

The larger-than-offered allotment suggested that the government took advantage of the strong demand to meet its financing needs at prevailing rates.

The October auction witnessed a notable increase in marginal rates, reflecting investors’ expectations for higher yields amid inflation concerns and tighter monetary policies.

The 5-year bond was allotted at a 20.75 per cent marginal rate, up from 19.00 per cent in September, representing a 9.2 per cent increase. Similarly, the 7-year bond saw its marginal rate rise to 21.74 per cent from 19.99 per cent in the previous month, which is 8.8 per cent increase.

 Meanwhile, analysts stated that the strong demand for FGN bond attracted yield, which offered 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 at the Centre for the Promotion of Private Enterprise, Dr. Muda Yusuf, had stated that the FG 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.”

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 were unsustainable.

Adnori said: “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.” 

A banker and stockbroker, Mr. Tajudeen Olayinka, said: “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 the 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.”