With a budget of N9.12 trillion for the 2018 fiscal year, the federal government, through the Debt Management Office (DMO) has so far raised N759.25 billion through the local bond market since the beginning of the year.
Although the DMO had set out to raise N1 trillion between January and November this year through the Federal Government of Nigeria (FGN) Bond offerings, it had raised N756.87 billion through the bond market.
It was also able to raise N2.38 billion through the FGN Savings Bond between January and September this year. It had raised most of the fund through reopenings of the 12.75 per cent April 2023, 13.53 March 2025 and 13.98 February 2028 papers.
In January it had offered and raised N110 billion through the 14.5 per cent July 2021 and 16.2884 per cent March 2027 papers. The DMO had been able to meet its target only twice, January and March, as most of the bond offerings underperformed.
Interest in the FGN Savings Bond had also waned as N2.382 billion had been raised through the two and three year papers between January and September this year out of the N10.5 billion that has so far been raised through the savings bond in the last 18 months.
Average yields on the FGNSB had declined from 13 per cent last year to 11 per cent this year as the amount raised at each auction declined progressively. At the debut auction held in March last year, the DMO had raised N2.06 billion through the two year bond but as at last month, the amount raised through the 2- and 3-year bond was N368.28 million.
Likewise, average marginal yields on the FGN Bonds had declined to 13 per cent from 16 per cent as the average amount raised at the monthly bond auction dropped to N70.9 billion in the first six months of 2018 from N141.6 billion in the comparable period of last year.
Nigeria’s domestic debt as at June 2018 had reached N12.15 trillion with most of it made up of high-interest credit. The DMO said the government is working on a strategy to reduce domestic debt to 60 per cent of the total, from 73 per cent as a way of reducing government’s debt-service costs, lowering of interest rates in the domestic market and improving the availability of credit facilities to the private sector.
At the November Bond Auction, the DMO had raised N39.52 billion as against N115 billion which it set out to raise. The government had earlier in the year said it would cut back on its local borrowings to reduce what it spends on debt servicing.
In 2017, it had spent N1.476 trillion in servicing domestic obligations and as at the end of June this year, N940.998 had been expended on domestic debt servicing.
Director-general of the DMO, Patience Oniha, who noted earlier this week that the FGNSB had performed below expectations in terms of investors’ interest, said the debt office was considering allowing Nigerians participate in the FGNSB which is retail – based through their mobile phones.
While reacting to the development, managing director of HighCap Securities Limited, Mr. David Adonri , said the present clamour by the generality of Nigerians and commitment of government to rebuilding Nigeria’s dilapidated infrastructure as catalysts for economic development had brought to the fore the need for a functional bond market given the developmental needs of the economy.
He said that the dearth of adequate financing has been identified as one key factor inhibiting the much needed investment in critical infrastructure, saying that substantial long term financing would be required to rejuvenate Nigeria’s ailing key industrial sector, power sector, and the provision of socio-economic development in education and healthcare sector among others.
He however said that FGN savings bond was still attractive but purchasing power was low. “Having exited the recession, the tendency for financial assets to start migrating to equity is high. Finally, the money market operators have devised means of bunching retail investors to invest in treasury bills contrary to regulations,” he said.
Also, chief operating officer of InvestData Consulting Limited, Mr. Ambrose Omordion, said the bond market plays a central role in the deepening of financial markets not only for the diversity of products it offers the market but essentially its role in improving diversification of funding sources and increasing access to credit markets.
Omordion noted that the FGN savings bond came up as a alternative investment at a time the government needed funds and the capital market needed a boost in business activities as the stock market was significantly bearish.
He however, said that FGN Savings Bond has recorded a low performance this year, a situation attributable to investors’ apathy and dwindling purchasing power.
According to Omordion, it was therefore the right time to ensure that proper structures were in place to ensure the development of a deep and expansive bonds, loans and derivatives market in Nigeria.
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