FG sells N106bn bonds at 16.25%

The Federal Government through its debt office has sold a total of N105.96 billion worth of five, 10 and 20-year bonds denominated in the local currency at 16.25 per cent.

Despite the huge amount borrowed so far by the government, the finance minister, Mrs. Kemi Adeosun, believes that the largest economy in Africa needs to continue to borrow domestically and abroad to fund its budget for 2017.

This, however, followed her earlier statement within the week that Nigeria “cannot borrow anymore”, and should instead raise money it needs by other means.

Although, the amount raised was less than the N135 billion it had initially proposed to issue at the auction, data from the nation’s debt offices has showed.

However, the Debt Management Office (DMO) sold less of the five-year bond at the auction than it initially offered as the yields on offer failed to attract investors seeking higher returns on the debt, auction data showed.

A total of 47.01 billion naira of the 10-year paper was raised at 16.25 percent against 16.19 percent previously, while 55.05 billion naira worth of the 20-year bond was sold at 16.25 percent, compared with 16.19 percent previously.

It sold 3.90 billion naira worth of the five year debt at 16.24 percent compared with 16.19 percent at last month’s auction. The amount raised was short of the 35 billion naira initially offered by the DMO.

“The low demand for the 2021 bond was a reflection of the level of liquidity in the market and the pricing of the bond which was lower than the prevailing rate at the secondary market,” a senior fixed income dealer told Reuters.

The dealer said that while the 2021 paper was trading around 16.30 percent at the secondary market, the debt office sold it at 16.24 percent, which investors considered unattractive to them.

The debt office however sold more of the 2037 paper at the auction.

Meanwhile, the out-gone Director General of the DMO, Dr. Abraham Nwankwo, however offered explanation for the rising cost of Nigeria’s domestic lending environment in a statement.

The Debt Management Office (DMO) paid out over N4.8 trillion as interests in the last five years to banks and other investors. The money was lent to Nigerian Government from the domestic market through the FGN Bonds; Treasury Bonds or Treasury Bills issued by the Central Bank of Nigeria (CBN) as part of measures to check inflation caused by excess liquidity in the economy.

This figure excludes the repayment of the principal sum borrowed, some of which matured during the period and were promptly settled. The figures obtained exclusively by The Guardian yesterday from the DMO covers the period between January 2012 to March 2017, with the sum of N449.060 billion being the amount paid for the first three months of the year 2017.

A breakdown of the interest service payments, indicate that between 2012 and 2013, N701.379 billion and N794.104 billion was paid out as interest service charge. The following year, the sum grew to N865.809 billion, whereas in 2015 and 2016, the amount galloped to N1.018 trillion and N1.228 trillion respectively.

The cumulative amount on the interest service represents nearly Nigeria’s entirely year fiscal budget. The development is as the Federal Government is yet to make any release for the 2017 capital votes for the implementation of infrastructure projects, which have growth multipliers effect on the country.

At the close of the first quarter of 2017, Nigeria’s domestic debt stock had climbed to N11.971 trillion from N6.201 trillion five years earlier in the year 2012 within the period under review.

The huge interest shows the high interest regime in the Nigerian financial system even in the less risky investment platform such as the Federal Government sovereign Bond issue ranging from around 5 per cent to as high as almost 15 per cent depending on the tenor of the issue, considered by economic watchers as one of the highest and competitive in Africa.

Also, the DMO interest benchmark rate is believed to be the major modulator or driver of interest rate regime as well as major enemy of the real sector growth in the Nigerian economy as deposit money banks who are the major investors in the bond issues would prefer to invest in the safe haven of the FGN bonds than lend to operators of the real sector, thus stifling the growth in the sector through a crowding out effect.

Most importantly, there has been growing concerns that the funds raised from the monthly issues of the Bonds by the DMO to fund the fiscal budgetary deficits cannot be accounted for because the Bonds as not project- specific and most time end up as overheads, such as entertainment for political appointees in which case they no longer become geared for growth purposes.

The out-gone Director General of the DMO, Dr. Abraham Nwankwo, however offered explanation for the rising cost of Nigeria’s domestic lending environment in a statement.

According to Nwankwo, “The stock of FGN’s domestic debt rose steadily from N6,537.54 billion as at end-December, 2012 to N11,058.20 billion as at end-December, 2016. This development was largely due to the reliance on domestic debt to fund rising budget deficit and refinancing of matured domestic debt obligations.