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The Federal Government’s strategy to pay its N10.78 trillion budget deficit may be jeopardized by investors’ lack of interest in Nigeria’s national bonds. 

The government intends to issue domestic bonds to cover around two-thirds of the projected deficit in Budget 2023. 

Due to investor apprehensions over underpricing and sociopolitical risks, the government was only able to raise around 53% of the amount it had previously offered on the domestic debt market.

The federal government was only able to generate N107.88 billion during its regular primary market auction, falling short of its goal of N225 billion (about 53 per cent of the total offer). 

The overall subscription of N119.18 billion demonstrated that the low allotment was caused by a lack of investor interest rather than the issuer rejecting bids. The bid for the October issuance was down 51.63 percent from the bid from the previous month.

The government had asked for two offers to raise N75 billion each, but it only received offers totaling N7.43 billion and N15.60 billion, respectively. This represents a shortfall of N126.97 billion from the two offers’ combined offer size of N150 billion. However, a total of N96.15 billion was offered for the third offer, which was for N75 billion. 

Given the uncertainty surrounding the next national election, the Central Bank of Nigeria’s hawkish stance, and the FX liquidity issue at the market, the majority of analysts felt the under-subscription to the sovereign bonds was a warning sign of investors’ apathy.

According to Mr. Tunde Amolegbe, managing director of Arthur Steven Asset Management, the market’s current mood suggests that the apathy toward government bonds may last for the time being. 

According to him, the degree of policy stability and the decline in political risk will define the outlook for the sovereign debt market over the medium to long term.

“Well may be, on the short run (it may pose threat to deficit funding), but I think as policy stabilises and politics recedes, investors’ appetite is expected to pick up in the medium to long-term. However, we expect that the next bond auction might not be any better,”

He said that four interrelated causes, including the low systemic liquidity as a result of the Central Bank of Nigeria’s hawkish monetary policy, were to blame for the under-subscription (CBN). 

The benchmark interest rate reached its highest level since the MPR was adopted in December 2006 when the CBN’s Monetary Policy Committee (MPC) hiked the MPR by 150 basis points from 14.00% to 15.50%. 

The MPC maintained the asymmetric corridor at +100/-700 basis points around the MPR while raising the Cash Reserve Ratio (CRR) from 27.50 to 32.50 percent. Additionally, it kept the liquidity ratio at 30%.

According to Amolegbe, the recent past president of the Chartered Institute of Stockbrokers (CIS), in the current high-interest climate, investors are being cautious while locking in government bonds because they anticipate that interest rates and yields will continue to climb. 

The “weak market appetite may not be unconnected to reduced system liquidity,” according to analysts at Afrinvest West Africa. 

With total receipts of N9.73 trillion in 2023 and a proposed budget size of N20.51 trillion, the Appropriations Bill would have a N10.78 trillion deficit.

The Minister of Finance, Budget, and National Planning, Mrs. Zainab Ahmed, stated at the public presentation of the breakdown and highlights of the proposed 2023 budget that the N10.78 trillion overall budget deficit would be mostly covered by domestic loans. 

She explained that the budget deficit will primarily be funded by borrowing from domestic and foreign sources, including N7.04 trillion from domestic sources, N1.76 trillion from foreign sources, N1.77 billion from multilateral and bilateral loan drawdowns, and N206.18 billion from expected proceeds from the privatization of national assets.

“There is a continuing need to exceed this threshold considering the existential security challenges facing the country,” Mrs. Ahmed said.

She said the government will continue to use the proper debt management tools to reduce the cost and risk profile in the debt portfolio, including concessional loans, and that Nigeria has no plans to restructure its debt as long as it is committed to meeting its domestic and external debt obligations. 

Even after taking into account the outstanding balance on CBN Ways and Means Advances, the total public debt as a percentage of GDP stood at 23.06 percent as of June 30, 2022, falling within the 55 percent threshold advised by the International Monetary Fund (IMF) and World Bank (WB) and Nigeria’s self-imposed cap of 40 percent set in the MTDS 2020–2023.



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