Nigeria Borrows N5.63trn from Local Investors to Fund 2024 Budget Deficit, Infrastructure Projects

In its quest to bridge the 2024 budget deficit and fund some key infrastructure projects, the federal government has borrowed an estimated N5.63 trillion from local investors through the FGN Bond market in the first 11 months of 2024.

The federal government, through the Debt Management Office (DMO), sought to borrow an estimated N5.6 trillion but eventually received N5.63 trillion, statistics compiled by THISDAY have shown.

The DMO’s monthly auctions revealed that investors’ subscriptions in the period under review stood at N6.81 trillion as demand for long-term instruments grew significantly amid its double-digit yield.

The auction results by DMO showed that February 2024 had the highest offer, subscription and allocated amount to investors, with the lowest amount of FGN Bond offered to the investing public in November.

The debt office had in February 2024 offered N2.5 trillion to the investing public and it witnessed a subscription amount of N1.9trillion.

The DMO, however, allotted N1.49 trillion to investors.

For the November 2024 auction, the DMO offered N120 billion to the investing public, evenly split at N60 billion for each bond series.

The FG, thus raised over N346.16 billion at its November 2024 bond auction from N289.6 billion in October 2024, reflecting higher allotments despite a reduction in the amount offered.

The auction conducted by the DMO on November 18, 2024, featured reopening of the 19.30per cent FGN APR 2029 (5-Year Bond) and the 18.50per cent FGN FEB 2031 (7-Year Bond).

Compared to October when it offered N180 billion, the November auction saw a 33.33 per cent reduction in the total amount offered.

The DMO placed N60 billion on offer for each bond, representing a drop from N90 billion offered in October.

Despite the lower offerings, total allotments rose significantly, climbing by 19.50 per cent to N346.155 billion from N289.597 billion in October.

For the 5-year Bond, N63.530 billion was allotted, while the 7-year Bond recorded an allotment of N282.625 billion.

In contrast, the October auction allotted N57.237 billion and N232.360 billion for the 5-year and 7-Year Bonds, respectively.

However, investor interest far exceeded expectations, with total bids amounting to N369.585 billion—a 208 per cent subscription rate.

This oversubscription highlights the market’s appetite for fixed-income instruments amid evolving macroeconomic conditions.

Investor demand remained strong but moderated slightly, with total subscriptions in November reaching N369.585 billion, a 5.06 per cent decline from October’s N389.321 billion.

The 5-year Bond attracted N75.560 billion in subscriptions, up from N60.737 billion in October. Conversely, the 7-year Bond saw subscriptions drop to N294.025 billion from N328.584 billion.

Marginal rates increased in November 2024, reflecting tightening liquidity conditions.

The 5-year Bond’s marginal rate rose to 21.00 per cent from 20.75 per cent in October, while the 7-year Bond’s rate increased to 22.00 per cent from 21.74 per cent.

Bid ranges in November also highlighted robust investor competition, with the 5-year Bond receiving bids between 19.00 per cent and 21.90 per cent, and the 7-year Bond bids ranging from 18.00 per cent to 23 per cent.

The rise in marginal rates suggests a broader trend of upward pressure on borrowing costs, potentially influenced by inflationary trends and monetary policy adjustments.

Investing in government securities, for example, through Bonds, offers several benefits and is considered a low-risk investment option.

FGN Bonds, among other instruments, are debt obligations issued by the government to raise funds, typically for budgetary and development needs.

With the deficit in the 2024 budget put at N9.18 trillion, the FG seems committed to borrowing more from the domestic market.

Commenting on government securities in Nigeria, analysts attributed the strong demand for FGN bonds to attractive yields, which offer investors high returns on their investments.

They stressed that the oversubscriptions also revealed that investors have confidence in the federal government’s ability to meet its debt obligations.

The Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf stated that the FG notified the general public of borrowing more in 2024.

He said, “With all the volatility and foreign exchange issues, it makes sense to borrow at the domestic market rather than borrowing from the international market. It is all a reflection of our macro economy environment challenges and weak fiscal policy of the government. All this borrowing also is a reflection of the weak financial position of the government and it will continue like that.”

Kayode Tokede

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