The Federal Government will today auction medium-to long-term bonds valued at N150 billion as part of government’s efforts to access debt capital from the domestic capital market to bridge declining revenues and restructure the general balance of the national debt stock
The Debt Management Office (DMO), which oversees Federal Government’s debt issuances and management, will undertake a primary market auction (PMA) by reopening three bonds with tenors ranging from seven to 29 years.
The DMO is offering N50 billion each across its 13.98 per cent FGN February 2028, 12.40 per cent FGN March 2036 and 12.98 per cent FGN Mar 2050 bonds. The term-to-maturity or tenors of the bonds are six years and six months, 14 years and seven months and 28 years and seven months. The previous stop rates for the bonds were 12.35 per cent, 13.15 per cent and 13.25 per cent respectively.
Analysts said they expected the coupons or rates at the PMA to “adjust further” given the recent trend in the market.
Analysts expected investors to concentrate on the PMA, but advised investors to position in attractive yields across all maturities.
Sustained buying interests in sovereign debts in recent period have been forcing yields downward. Last week, average yield in the secondary bond market dropped by 38 basis points to close 11.56 per cent from 11.94 per cent two weeks ago.
According to Afrinvest Securities, the average yield in the short-end of the curve fell the most, contracting 62 basis points to open this week at 9.30 per cent from 9.92 per cent in previous week. Average yield in the long-end of the curve also dipped by 33 basis points to open this week at 11.56 per cent while the average yield at the mid-end of the curve shed 26 basis points to open at 12.06 per cent.
DMO, Director-General, Patience Oniha on Monday said as a result of poor performance in revenue, there would be an increased borrowing.
She spoke in Abuja during the 2022-2024 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) interactive session with the House Committee on Finance.
According to her, much as government has been conservative in projecting revenue, it will still be underperforming in revenue.
“So, it means that we are relying increasingly on borrowings to finance the activities of government.
“And if you look at the figures from last year when the budget was revised because of COVID-19, we can see that the borrowing levels are going higher. So, what that means is that the debt stock as expected will keep rising and debt service will also keep increasing, as shown in the presentation.
“I just thought I should highlight that, that this is primarily where the debt stock is growing from, and the debt service, which means that we are also servicing, taking from the revenue which has not grown as expected. I thought I should highlight that because there is a lot of concern about debts. But really, this is the source and we can see the trend,” Oniha said, corroborating earlier presentation by the Minister of Finance, Budget and National Planning, Hajia Zainab Ahmed.
She outlined that looking at where the public debt stock is and what it is projected to be, based on the new borrowings provided for in the MTEF; debt stock will grow naturally, same for debt-to-GDP ratio too.
“The committee may be aware that early this year, the public debt to GDP ratio was increased to 40 per cent primarily because of the increases in new borrowings and other activities of government. So, debt to GDP will also grow over the period but we are still within the limit of 40 per cent that was approved in February,” Oniha said.
Ahmed had said the Federal Government would borrow about N4.89 trillion both from local and foreign sources to finance its budget deficit for 2022 due to decreasing revenue from government sources.
She said that the sustained perception about the over valuation of the naira despite recent adjustment by the Central Bank of Nigeria has compounded Nigeria’s risk aversion in the global capital market which will further put pressure on the foreign exchange market as foreign portfolio investors are yet to return to the Nigerian market.
According to her, government is projecting to borrow from foreign and domestic sources to finance the N5.62 trillion budget deficits in the 2022 financial year and it is likely to cut down capital expenditure by N259.315 billion in 2022.
She said that the reduction became necessary given economic volatility occasioned by unstable global oil market as well as effects of the covid-19 pandemic.
She pointed out that in the area of capital expenditure, the sum of N1.76 trillion as opposed to the N2.02 trillion will be available to Ministries Department and Agencies of government in 2022.
She also disclosed that the government has decided to peg the Exchange rate at N410 per dollar, adding that the projection is likely to come down in favour of the naira in 2023.
“The budget deficit and the financing items for the expenditure projected for 2022 is N5.62 trillion, up from N5.60 trillion in 2021. The deficit is going to be financed by new foreign and domestic borrowing, both domestic and foreign in the sum of N4.89 trillion, then privatisation proceeds of N90.73 billion and drawdowns from existing project titles of N635 billion.
“This amount represents 3.05 percent of the estimated GDP, which is slightly above the 3 percent threshold that is spent recommended in the Fiscal Responsibility Act.
“The revenue that we expect is N6.54 trillion N2.62 trillion to accrue to the Federation Account and VAT respectively,” she said.
She said further that net oil and gas revenue which will be available for the Federation Account for distribution will be N6.151 trillion in 2022.
She disclosed that the key macro-economic assumptions contained in the MTEF/FSP include a crude oil benchmark price of $57 per barrel for 2022, crude oil production of 1.88 million barrels per day, and a dollar exchange rate of N410.15 to one US dollar, an inflation rate of 13 percent in 2022, and a nominal GDP of 149.369 trillion.
She noted that interestingly; non-oil GDP continues to grow at 169.69 trillion compared to oil GDP of 14.68 trillion included in the nominal GDP. Nominal consumption is 130, 49.36 billion.
On unemployment, she said that the National Bureau of Statistics projected that about 82.9 million Nigerians are currently adjudged to be living in extreme poverty.
The Minister however said that Nigeria has continued to be exposed to risk aversion in the global capital markets, which will put further pressure on the foreign exchange market as foreign portfolio investors are yet to return to the Nigerian market.
She emphasised that the situation is also compounded by sustained perceptions about over-valuation of the naira, despite recent adjustments by the Central Bank of Nigeria (CBN), adding that in response to the developments affecting the supply of foreign exchange to the economy, the CBN adjusted the official exchange rate to align with the NAFEX rate, currently N410.15 /US$1, thus Moving closer to a unified exchange rate regime.
She said further that the weaker-than-expected economic performance is threatening the nation’s ambitious revenue growth targets, as seen in the 2021 Performance up to June.
The Minister said further that non-oil revenue performance has been impressive and heading in the right direction. Efforts will be sustained in this regard, while high costs, including PMS under-recovery and cost of securing oil pipelines are however weighing down on oil revenues; these issues must be addressed wholesomely to free up much needed fiscal space.
She told the Lawmakers that “the draft 2022 – 2024 MTEF/FSP has been prepared against the backdrop of global economic recovery amidst improved vaccination outlook and lower incidence of infection, despite recent surge in the Delta variant. However, the Medium Term Fiscal Framework shows that there are continuing global challenges in the aftermath of the COVID-19.
“Overall, fiscal risks are somewhat elevated for Nigeria, due to persisting weaknesses in the economy and slower than expected recovery”.
Director General, Budget Office of the Federation, Ben Akabueze said at the end of June 2021, the non oil sector of the economy was running high in terms of revenue generation, while the oil revenue was on the decline.
He said “as the Honourable Minister highlighted in her presentation, as of June, in terms of revenue performance, our non-oil tax revenues were running ahead of or very close to target. But our oil revenue performance was a drag – just under 50 per cent of target. That pulled down our overall revenue performance percentage.
“But on the expenditure side, we are running over 90 per cent, not surprising because we are meeting all of our recurrent expenditure and there is also strenuous efforts being made to fund the capital budget. So, that has meant that the deficit was running ahead of plan as of that date.
‘Overall, the deficit is still within the ceiling set in the Appropriation (Act 2021). Expenditure is over 90 per cent but our revenue is a little under 70 per cent; that is the overall in aggregate. On capital, as of the number that we have presented, extrapolated to August. But as of June, releases for capital were over N900bn. But that figure has gone up to N1.3tn (as of August). As the honourable minister has reported, as of August is 63.5 per cent appropriated for capital has been released, which is the N1.3tn.
The Office of the Accountant General of the Federation said they were compiling a list of MDAs that has defaulted in remitting revenue to government and the amount each agency is owing the government from e presentation to the House Committee by Tuesday.
