The Federal Government will today conduct a primary auction of new bond issuances to raise about N225 billion new debts from the domestic capital market.
The Debt Management Office (DMO), which oversees Federal Government’s debt issuances and management, indicated that the government would be raising the debts through the reopening of three previously issued mid-to-long term bonds.
The bonds being reopened include the 10 per cent 10-year bond, which matures in March 2025 and now being offered with a coupon of 13.53 per cent. Also being reopened is the 10-year, 12.45 per cent bond, which matures in April 2032 and now being offered with a coupon of 12.50 per cent. The long-term 20-year bond with initial coupon of 13 per cent and maturity date of January 2042 is being reopened at the same coupon rate.
The government plans to raise N75 billion each from the three bonds, totalling N225 billion. Nigeria depends on regular debt issuances to finance budget deficits as poor infrastructure and insecurity continue to threaten itss revenue.
Earlier this month, the 60th edition of the monthly Federal Government of Nigeria Savings Bond (FGNSB) as floated. The DMO had offered two tranches of FGNSBs with two-year and three-year tenors. The government offered two-year sovereign retail bond at a coupon of 8.205 per cent with maturity on June 15, 2024 while it also simultaneously offered three-year FGNSBs at a coupon of 9.205 per cent with maturity on June 15, 2025.
The DMO had reported that Nigeria’s total public debt stock increased to N41.6 trillion or $100.07 billion by the end of first quarter 2022, 5.16 per cent or N2.04 trillion increase on N39.56 trillion or $95.78 billion recorded as at December 31, 2021.
The total public debt stock included domestic and external debts of the Federal Government, state governments and the Federal Capital Territory (FCT).
The DMO noted that the total public debt stock included new domestic borrowing by the Federal Government to finance the deficit in the 2022 Appropriation Act, the $1.25 billion Eurobond issued in March 2022 and facilities by multilateral and bilateral lenders.
Data from the Central Bank of Nigeria (CBN) indicated that loans to the Federal Government through it rose from N17.46 trillion in December 2021 to N19.01 trillion in April 2022, representing an increase of N1.55 trillion over the four-month period.
Section 38 of the CBN Act, 2007 allows the apex bank to grant temporary advances to the Federal Government with regard to temporary deficiency of budget revenue at such rate of interest as the apex bank may determine. However, the total amount of such advances outstanding shall not at any time exceed five per cent of the previous year’s actual revenue of the Federal Government.
Senior Research Analyst, FXTM, Mr. Lukman Otunuga, said Nigeria’s rising budget deficit poses a major threat to the country’s long-term economic outlook.
According to him, growing fiscal deficit and resultant debts portfolio could undermine economic sustainability with wide ramifications of unemployment, devaluation, greater vulnerability and increased fiscal crisis among others.
In a review, Otunuga said Nigeria’s ballooning debt profile has become a perfect example of how excessive government spending can place an economy in an unfavourable position, despite its mission to stimulate growth.
According to him, there is almost a global consensus that Nigeria’s rising budget deficit threatens its long-term outlook.
He noted that over the past 10 years, Nigeria, Africa’s largest economy, has been spending beyond its revenue with the International Monetary Fund (IMF) forecasting the government’s deficit to widen to 6.4 per cent of Gross Domestic Product (GDP) in 2022 from six per cent in 2021.
He pointed out that while Nigeria’s total public debt is expected to reach 44.2 per cent of GDP by 2027, one of the primary dangers of a budget deficit is the continued increase in prices.
“If the deficit forces the Central Bank of Nigeria (CBN) to release more money into the economy, such could feed into inflationary pressures – threatening economic growth. It does not end here; the ballooning debt lowers Nigeria’s national savings, encourages spending cuts, decreases the ability to respond to domestic and external shocks, and most importantly increases the risk of a fiscal crisis,” Otunuga said.