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FG Borrows N2.2 Trillion from Local Investors through Bonds, Treasury Bills

FG Borrows N2.2 Trillion from Local Investors through Bonds, Treasury Bills

In continuation of efforts to fund the N6.4 trillion deficit spending in budget 2022, the Federal Government borrowed N2.2 trillion from local investors in the first quarter of the year, Q1’22, through FGN Bonds, treasury bills and the FGN Savings Bonds.

The amount borrowed however represents an 8.6 per cent decline when compared to N2.4 trillion representing 8.6 per cent, YoY decline from N2.43 trillion sold in Q1’21.

But the FG also paid local investors N827 billion for loans through matured treasury bills, resulting in net borrowing of N1.93 trillion from local investors in Q1’22.

Under the approved Budget 2022, the FG plans to plans to spend N17.1 trillion with projected revenue of N10.7 trillion and fresh borrowing of N6.4 trillion to be financed by foreign borrowings of N2.57 trillion, domestic borrowings of N2.57 trillion, privatization proceeds of N90.7 billion, and multilateral /bi-lateral loan drawdowns of N1.16 trillion.

Thus the net borrowing of N1.93 trillion from local investors in Q1’22 represents 75 per cent of proposed borrowing from local investors in 2022.

The above, when combined with the $1.25 billion (N520 billion) borrowed from foreign investors last week through Eurobonds, indicates an N2.45 trillion increase in the nation’s public debt profile to N42 trillion in Q1’22.

Meanwhile, investors demand for FGN Bonds and Treasury bills, the two main debt instruments of the FG, rose sharply by 75 per cent, year-on-year, YoY, to N4 trillion in the first quarter of the year, Q1’22, from N1.17 trillion in the corresponding quarter of last year, Q4’21.

The sharp increase in investors’ demand is driven by the huge volume of idle cash (excess liquidity) in the financial system, The huge volume of excess liquidity occasioned by the expansionary monetary policy of the Central Bank of Nigeria, CBN, in its quest to sustain the upward momentum in economic growth as reflected in the 3.4 per cent growth in the nation’s Gross Domestic Growth, GDP, in 2021 from 1.8 per cent contraction in 2020.

Read More: Foreign, Local Investors Withdraw N90.12bn, N248.94bn from Nigerian Stock Market in Q1 2021

Among other measures, the CBN increased net liquidity injection into the interbank money market by 110 per cent to N770 billion in the first quarter of the year, Q1’22, from N367 billion in the fourth quarter of last year, Q4’21.

As a result of the sharp increase in net liquidity injection, the average daily opening position of the interbank money market in terms of excess liquidity rose by 73 per cent, QoQ, to N246.84 billion in Q1’22, from N143.42 billion in Q4’21.

The liquidity surge triggered by the above development, resulted in a 75 per cent, YoY upsurge in demand for FGN bonds and NTBs in Q1’22.

Findings from CBN data and that of the Debt Management Office, DMO, for debt auctions in Q1’22 show that the FG offered N1.17 trillion worth of debt instruments, representing a 21 per cent decline from N1.41 trillion offered in Q1’21.

But the amount of instruments demanded by investors (total subscription) rose by 75 per cent, YoY, to N4.02 trillion in Q1’22 from N2.29 trillion in Q1’21.

Consequently, oversubscription or excess demand for the two instruments rose sharply to 244 per cent in Q1’22 from 63 per cent in Q1’21.

About Bukola Olanrewaju

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