The Federal Government may overshoot its initial target of N360 billion as bids open today for another round of domestic debt issuance.
The Debt Management Office (DMO), which oversees government’s debt issuance and management, has indicated it would be offering four bonds with a view to raising N90 billion on each tenor, totaling N360 billion.
Most market analysts expected the bond issuances to be substantially oversubscribed, providing the government with headroom to raise more than the initial target.
Analysts cited recent subscription and allotment patterns, pointing out that there have been no significant changes to alter the patterns.
“I suspect that just as in the other recent auctions, the long end of the maturity curve should be oversubscribed due to attractive yield. The appetite for the short end might not enjoy that much patronage,” a leading dealer in government bonds said.
Government relies on its scheduled domestic issuance to bridge its budget deficit, as it navigates the delicate balance of sluggish revenue growth and high recurrent and capital expenditures.
Nigeria’s budget deficit stands at N13.78 trillion or 6.11 per cent of Gross Domestic Products (GDP) in 2023. The government plans to reduce this to N9.18 trillion or 3.88 per cent of GDP in 2024.
Last week, the DMO increased its initial offer size of its Nigerian Treasury Bills (NTBs) auction by 479.1 per cent after recording oversubscription of about 1,643 per cent. The government had offered NTBs worth N104.36 billion across three tenors of 91-day, 182-day and 364-day; but total subscription was N1.76 trillion, higher than N1.23 trillion staked on previous auction.
With the huge oversubscriptions, the DMO allotted more NTBs across the tenors, raking in a total of N604.36 billion. A breakdown indicated that government allotted N14.42 billion for the 91-day NTBs as against initial target of N1.03 billion; N28.82 billion for the 182-day NTBs compared with initial target of N1.94 billion while it raised N563.12 billion on 364-day NTBs as against initial target of N101.39 billion.
At today’s auction, the government will offer four bonds across medium to long tenors to the investing public.
The bonds on offer, which are reopening of previous issuances, include the 10-year, 14.55 per cent April 2029 bond; the 10-year; 14.70 per cent June 2033 bond; 15-year, 15.45 per cent June 2038 bond and the 30-year, 15.70 per cent June 2053 bond.
Investors’ appetite for Nigeria’s sovereign securities has remained considerably high despite spiraling inflation trend and foreign exchange (forex) challenges.
Continuing increase in demand for sovereign debts comes on the back of government’s assurance Nigeria’s economic condition was not so bad that the country would require external assistance in restructuring its debts.
The government had also outlined policy measures to reduce debt finance and rejig non-debt revenue in 2024.
Minister of Finance and Coordinating Minister for the Economy, Mr Wale Edun, said the government was certain that Nigeria’s economy and its debt profile would not require any dire strait measures from international lenders.
Edun spoke against the background of Nigeria’s national debt, currently at more than N87 trillion, and concerns that shortfall in revenue could further worsen government’s financial sustainability.
He said the overall outlook of the economic potential and the reforms by the government gives a strong assurance that Nigeria will not fall into any likelihood of seeking international assistance on debt restructuring, such as the International Monetary Fund (IMF)’s “Common Framework”.
According to him, the government is implementing a reform package in the form of strong fiscal policies that promote fiscal discipline, effective debt management, and prudent borrowing practices.
“These policies help the government generate enough revenue and allocate resources efficiently, reducing the likelihood of needing debt restructuring.
“The ongoing reforms are a package. They are being implemented in a steady manner but they are complete in the sense that they deal with revenue side, the fiscal side; that is the government revenue and government expenditure.
“The reforms deal with monetary side through the Central Bank. Some measures have been taken by the Central Bank, including the foreign exchange market reforms. They deal also with the issue of financing, making sure that the deficit can be financed, among others.
“There are plans, strategies and targets in each of those areas. While it is a continuous work-in-progress, nothing ever stands still regarding the economy. I will say there is a well-laid out plan that is being constantly refined and this is led and spearheaded by Mr President’s eight-point priority areas,” Edun said.
According to him, the government would combine a variety of fiscal, economic and accounting strategies to reduce the country’s budget deficit by nearly half, in a major move aimed at blocking leakages and redirecting financing to long-term economic growth.
Edun outlined the comprehensive strategy that will underpin the implementation of the 2024 budget, with the overall aims of reducing deficit, enhancing revenue and locking in significant values into expenditures.
To achieve these objectives, the government will be implanting a variety of strategies including a thorough review of recurrent expenditure and prioritizing essential spending and eliminating wasteful or unproductive expenditures. These may include streamlining administrative processes, reducing travel costs, and consolidating certain functions.
Also, there will be efficient allocation of capital expenditure which is crucial for driving economic growth. The government will prioritize capital projects that have a high impact on productivity, job creation, and infrastructure development. These includes investing in energy, transportation, and other critical sectors.
In the area of revenue generation, the government will expand the tax base by identifying and incorporating new sources of revenue, such as the informal sector and digital transactions. These may involve simplifying tax laws, improving tax administration, and implementing targeted compliance measures.
Government will also improve tax collection efficiency to maximize revenue generation while investing in technology, strengthening tax administration systems, and enhancing taxpayer education to improve compliance and reduce tax evasion.
Also, government will explore alternative revenue sources beyond traditional taxation, such as asset monetization and privatisation, public-private partnerships, and targeted fees for specific services.
The government will also incentivize investment and economic growth by implementing tax breaks or other incentives for priority sectors. These strategies are expected to attract domestic and foreign investments, thus fostering job creation and economic expansion.
Already, the government plan to collaborate with state and local governments to enhance tax administration coordination and reduce tax leakages and eliminate multiple taxation. This collaboration will streamline tax collection, improve compliance, and optimize revenue generation.
Edun, highlighting the breakdown and major underlining principles of the 2024 budget, said the new budget proposal marked a pivotal shift from a trend of excessive borrowing to a focus on prudent financial management.
He said with careful strategic implementation, the government will achieve the key budget proposals, noting that they are all realistic and practicable.
According to him, there is need to realign revenue and expenditure management to deliver optimal value for money.
He noted that by prioritizing effective financial management, the government aims at instilling confidence among investors and citizens in its fiscal policies.
“The 2024 budget focus will be on value for money and raising the economy. The budget deficit is being brought down from about over 6.11 per cent of GDP to 3.88 per cent of GDP. That is a huge change in direction from unlimited and limitless borrowing to re-focussing on revenue and expenditure management to give value for money,” Edun said.
He highlighted that target was to increase Tax- to-GDP from roughly under 10 per cent now to 18 per cent in a couple of years.
“That target is a hugely ambitious one which we need to meet to reduce reliance on borrowing,” Edun said.
