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FED GOVT RAISES N770.6B NEW DEBTS THROUGH BOND AUCTION


Taofik Salako, Deputy Business Editor
 * 
 * 
 * 

February 17, 2023

The Federal Government has raised N770.56 billion from the debt market after
demand nearly tripled government’s initial target.



Transactional report for the February 2023 bond auction by the Federal
Government obtained yesterday indicated that the bond auction received a total
bid of N992.11 billion, about 176 per cent above government’s offer size of N360
billion.

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Government had offered to raise N90 billion each across four tenors of bonds but
three of the four bonds were overwhelmingly oversubscribed, providing the
government headroom to mop up more funds.



The bid-to-cover ratios for the 10-year FGN FEB 2028, 10-year FGN APR 2032,
20-year FGN APR 2037, and 30-year FGN APR 2049 bonds were 3.29 times, 0.87
times, 3.30 times, and 3.57 times.



The Debt Management Office (DMO), which oversees the issuance and management of
Nigeria’s sovereign debts, increased allotments across the three oversubscribed
bonds, while reducing allotment for the undersubscribed bond.



The government allotted N257.41 billion to investors in the 10-year FGN Feb 2028
bond as against total subscription of N296.214 billion, N51.12 billion to the
undersubscribed 10-year FGN Apr 2032 bond, which recorded total subscription of
N77.998 billion; N220.56 billion for the 20-year FGN Apr 2037 bond as against
total subscription of N296.619 billion and N241.47 billion was allotted to the
30-year FGN Apr 2049 bond, which had the highest subscription of N321.274
billion. The marginal rates for the bonds were 13.99 per cent, 14.90 per cent,
15.90 per cent and 16.00 per cent respectively.



Analysts at Arthur Steven Asset Management noted that the total subscription of
N992.11 billion in February was higher than N805.17 billion total subscription
recorded in January 2023, an increase of 23.22 per cent.

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Analysts attributed the increase in subscription to increase in liquidity and
strategic portfolio positioning for the year.

According to analysts, the subscription for the long-tenored 2049 bond showed
that more investors still prefer longer maturities despite the downgrade of the
country’s credit rating.



The Federal Government had laid out a budget size of N20.51 trillion on a total
revenue of N9.73 trillion in 2023, with plans to borrow N10.78 trillion in
2023.    



Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, at the
public presentation of the breakdown and highlights of the 2023 budget proposal,
said the overall budget deficit of N10.78 trillion for 2023 would largely be
financed through domestic loans.



She outlined that the budget deficit would be financed mainly by borrowings
including domestic sources, N7.04 trillion; foreign sources, N1.76 trillion;
multilateral and bi-lateral loan drawdowns, N1.77 billion and expected N206.18
billion proceeds from privatization of national assets.

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

She said Nigeria has no plan to restructure its debt as government remains
committed to meeting its domestic and external debt obligations.

According to her, government will continue to utilize appropriate debt
management tools to streamline the cost and risk profile in the debt portfolio,
including through concessional loans, spreading out of debt maturities to avoid
bunching, and re-profiling of the debt maturities by refinancing short-term debt
using long-term debt instruments.

Nigeria has increasingly relied on borrowings to bridge its dwindling national
revenue



Data provided by the Budget Office of the Federation showed that Nigeria has
consistently over the past eight years significantly underperformed its revenue
target. For instance, while the country had budgeted a revenue target of N7.2
trillion in 2018, it generated only N3.9 trillion, about 54 per cent of revenue
target. In 2019, it achieved about 59 per cent with revenue budget of N7
trillion and actual of N4.12 trillion. Revenue target and actual stood at N5.4
trillion and N3.96 trillion and N6.64 trillion and N4.64 trillion in 2020 and
2021 respectively. In the current budget, while the country had set a revenue
target of N5.82 billion, it only achieved 63 per cent or N3.66 trillion by July
2022.

Nigeria has been using more than three-quarters of its revenues to service
debts. Debt-service to total revenue ratio stood at 61.3 per cent in 2020, rose
to 90.9 per cent in 2021 and currently stands at 84.5 per cent.
Debt-service-to-total revenue was about 32.7 per cent in 2015.

DMO has expressed concerns that the country now faces the risk of being unable
to sustain its rising national public debts unless urgent actions are taken to
curtail expenditure and increase the country’s revenues.

DMO warned that while Nigeria’s loans may still be within acceptable range of
the country’s economic size, the country’s ability to sustainably meet the
obligations on such loans is now under threat.

Director General, Debt Management Office, Ms Patience Oniha, said beyond keeping
within debt-to-GDP ratio, it is important that the public debt is sustainable
and government is able to service its debt without the risk of distress.

Reviewing revenue budgets and actuals against actual debt service over the past
eight years, Oniha said the debt service-to-revenue ratio is “high”. 

She said dependence on borrowing and low revenue base were now threatening debt
sustainability.

“Nigeria’s public debt stock has grown consistently over the past decades and
even faster in recent years. Consequently, debt service has continued to grow,”
Oniha said.

She pointed out that Nigeria’s low revenue base compounded by dependence on
crude oil resulted in budget deficits over the past decades, putting pressure on
the country’s debt sustainability.

“The outlook shows that both the local and international markets are becoming
tighter and interest rates are rising, thus priority should be less on borrowing
and more on revenues from oil and non-oil sources,” Oniha said.

She said while efforts at increasing non-oil revenue are yielding positive
results, urgent actions are required to moderate the level of new borrowings and
ensure that the public debt is sustainable.

She outlined that government should, as a matter of urgency, rationalise
expenditure and accelerate the growth in revenues, including implementation of
strategic actions to boost tax administration and efficiency.

She said it was unacceptable that Nigeria has the lowest revenue-to-GDP ratio
among a list of country sampled by the World Bank noting that an efficient tax
administration would ensure greater compliance to remittances devoid of all
forms of evasions in the system.

According to her, most countries around the world have placed more emphasis on
taxation as a principal source of funding for the government while reverse is
the case in Nigeria.

Oniha also advised that “borrowing should be tied to projects and some of the
projects should generate commensurate revenues to service loans used to finance
them”.

She called for sale of government assets to unlock funding, adding that physical
assets such as idle or underutilised properties could be redeveloped for
commercialisation to generate revenue.

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