Nigeria Borrows N5.84 Trillion in 2024 to Bridge Budget Deficit

The federal government has borrowed an estimated N5.84 trillion from the FGN bond market in 2024 amid a move to bridge its 2024 budget deficit.

However, the figures represent a 0.17 per cent decline when compared to the N5.85 trillion the federal government borrowed in 2023 through the Debt Management Office (DMO).

The DMO, in its auction results, had raised N3.06 trillion from the FGN Bond market in 2022.

The monthly FGN bond auction tracked by THISDAY revealed that investors’ total subscription to FGN bonds was N7.09 trillion in 2024, down from N7.43trillion in 2023 as investors tend to invest in risk-free instruments, of which bond is an example.

As gathered by THISDAY, the DMO, in the 12 months of 2024, sought to raise N5.72 trillion as its demand on the risk-free instrument increased to N7.09 trillion.

Investors’ keen interest in FGN bonds in 2024 was on the backdrop of double-digit inflation that has played a significant role in domestic and foreign investors’ investment decisions.

THISDAY also gathered that the DMO, since the beginning of the year, has continually re-opened some FGN Bonds and steadily hiked its interest rate to attract investors amid the double-digit inflation rate and lucrative returns in the stock market.

The FG’s 2024 budget includes a significant budget deficit, reflecting the gap between the government’s projected revenues and expenditures for the year.

According to the proposed budget for 2024, a total budget size of N27.5 trillion, and a budget deficit of N9.18 trillion, as presented by President Bola Tinubu in November 2023.

The budget deficit is projected at N9.18 trillion in 2024 or 3.88 per cent of GDP. This is lower than the N13.78 trillion deficit recorded in 2023 which represents 6.11 percent of GDP.

“The deficit will be financed by new borrowings totalling N7.83 trillion, N298.49 billion from Privatisation Proceeds and N1.05 trillion drawdown on multilateral and bilateral loans secured for specific development projects,” Tinubu had stated while presenting the 2024 budget of renewed hope at the joint session of the National Assembly.

The government 2025 budget pointed to more borrowing and the FGN bond market will play a major role.

The federal government had declared that the N13 trillion deficit in the N48 trillion 2025 budget proposal would be financed through borrowing.

As gathered by THISDAY, pension funds Administrators (PFAs) have played a critical role in partaking in the FGN bond market.

The pension funds industry portfolio in the FGN Bonds (HTM) increased to N13.57 trillion as of October 2024, a report by the National Pension Commission (NAICOM) revealed.

Finance analysts attributed the strong demand for FGN bonds to attractive yields, which offer investors high returns on their investments, stressing that the over-subscription also revealed that investors have confidence in the federal government’s ability to meet its debt obligations.

The appetite for FGN bonds indicates that PFAs, and Nigerian investors prefer investment instruments with less volatility that assures them of their capital returns albeit with low yield on investment.

However, some analysts attributed the under subscription to some issuances to fear of interest rate risk, “as investors are fully well informed that the economy is still very much challenged and that inflationary pressure remains unabated.”

“So, investors expect higher yield for this particular issuance, while the government does not wish to borrow at a higher interest rate,” said an investment banker & stockbroker, Mr. Tajudeen Olayinka.

In recent years, Nigeria’s rising debt profile has been a topic of concern, as Vice President, Highcap Securities Limited, Mr. David Adnori, warned that the country’s debt levels are unsustainable.

Financing this huge infrastructure gap presents a formidable challenge to the government given Nigeria’s low revenue-to-GDP ratio of less than 10 per cent making inevitable the capital market route.

The Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf stated that the federal government had notified the general public of more borrowings.

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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