DMO Raised N1.6trn Amid Plan to Securitise FGN Ways & Means Loans from CBN
To finance the budget deficit for the fiscal year 2022, the Debt Management Office (DMO) has a local borrowing target of N3.53 trillion and the agency has now raised N1.57 trillion year to date, according to analysts note.
The budget for the fiscal year 2022 has a N7.35 trillion deficit, and the Nigerian government plans to close the gap with local and external borrowings. Its external funding target is N2.56 trillion.
The sum raised from sales of FGN Bonds is about half of the entire local debt borrowings planned for the fiscal year 2022, according to a review of the Federal Government spending plan for the year.
To fully meet the budget deficit, Nigeria’s debt agency is expected to raise the balance in the second half of the year, from local and international debt capital markets in line with the Fiscal Responsibility act.
As part of the effort to support federal government spending, last week, the DMO held its monthly auction of FGN bonds where the debt agency offered N225 billion instruments of various tenored to investors for subscriptions.
Demand was stronger than anticipated and bids outpaced DMO offer strongly due to healthy liquidity in the financial system and this resulted in oversubscription. READ: Fiscal Deficit: FG Raised 67% of External Borrowing Plan – DMO
The auction result shows that Nigeria’s debt agency eventually raised a total sum of N378.4 billion through re-openings of 2025, 2032 and 2042 FGN bonds. The DMO secured a total bid of N575.6 billion, according to analyst notes.
The successful bids for the 3-Year, 10-year and 20-year benchmarks were allotted at the marginal rates of 10.0% (unchanged), 12.45% (previously; 12.5%) and 13.0% (previously; 12.9%) respectively from the previous month.
Nigeria had earlier raised a $1.25 billion 7-year Eurobond from the international debt capital market priced at 8.4%. To meet the deficit funding target, DMO is expected to make additional Eurobond calls.
The latest dollar borrowings lifted the nation’s debt to gross domestic products and debt service cost to revenue to the north of 23.5% and 78.2%, according to Afrinvest, an investment firm in Lagos.
Securitisation of FGN Ways and Means from CBN
Coronation Research said it is awaiting the final decision to securitise Federal Government of Nigeria (FGN) Ways and Means advances from the Central Bank. Analysts told MarketForces Africa the loan will be fully securities to show true value to total debt.
MarketForces Africa gathered that Ways and Means Advances is a loan facility used to finance government in periods of temporary budget shortfalls subject to limits imposed by the CBN Act.
Analysts noted that CBN Ways and Means advances to the government have increased, reaching N16 trillion as of the end of the first quarter of the year. Acting as lender of last resort, the CBN opened its vault to the Federal Government amidst fiscal slippage due to fluctuation in oil export receipt.
The total sum extended to support FG’s spending rose significantly against the CBN 2007 Act; but the apex bank’s Governor, Godwin Emefiele remains unfazed. In a report, International Monetary Fund hinted that the CBN decision advances to the government are against best practices, cautioned the CBN.
Critics have maintained that Emefiele’s romance with the government has widened the CBN’s independence and cast doubt on the quality of monetary policy. With a responsibility to maintain full employment, stable price level and strong local currency, Emefiele led CBN has failed across the board, macroeconomic data indicate.
The inflation rate is out of touch, staying at double-digit over a longer period while the unemployment rate is abysmally high at 33.3% at the last count in the third quarter of 2020 with a weakened local currency which has lost significant value in the foreign exchange market.
DMO raised a total sum of N1.66 trillion and N2.32 trillion from FGN bond sales in the fiscal year 2020 and 2021 respectively. At about N40 trillion in total public debt, FGN bonds represented 72% of total Nigeria’s domestic debt as at end of the fiscal year 2021.
According to data from the FMDQ Exchange Platform, as of 19 May 2022, these instruments collectively have a market capitalisation of N1.5 trillion, Coronation Research stated. Unsurprisingly, the report stated said collectively, FGN bonds accounted for 58.7% of total assets under management (AUM) of the pension fund administrators (PFAs) at the end of March 2022.
“The longer-tenured nature of FGN bonds which have maturities of up to 30 years contributes to the attractiveness of this asset class.
“We note that over the past months, particularly since the peak of the pandemic in 2020, Nigeria’s domestic fixed income market has been dominated by local investors.
“From our channel checks, we note that the participation of foreign portfolio investors in recent auctions has been minimal”.
Coronation Research said it awaits the final decision on the Securitisation of the FGN’s ways and means advances from the CBN, which is estimated at N16 trillion as of end-March 2022. It said if the ways and means advances are securitised, they could become tradable in the secondary market. #DMO Raised N1.6trn Amid Plan to Securitise FGN Ways & Means Loan from CBN