Markets ready for FG’s N565bn Q1 borrowing plan

By Moses Obajemu

• Money to finance 2020‭ ‬budget deficit

The Nigerian financial markets are excited and ready for what appears to be an active first quarter as the federal government, through the Debt Management Office (DMO), begins its 2020 budget deficit financing fund raising round this week.

The Debt Management Office (DMO), on behalf of the federal government, is to borrow the sum of N565 billion during the first quarter of 2020 to enable government fund the deficit embedded in the 2020 federal budget.

business a.m. gathered that during a meeting with all primary dealer market makers recently, the DMO stated its plans to raise N565 billion in Q1-2020, to take advantage of the current low-interest-rate environment.

A total borrowing of N1.7 trillion is estimated for the 2020 financial year.

As a first step,  the federal government will this week  reopen the  5-year, 10-year and 30-year bonds with offers ranging from N45-N55 billion, N45-N55 billion, and N50-N60 billion respectively, and most dealers believe the bonds will be over subscribed.

Following the restriction on domestic investors not to participate in the OMO market, many Nigerian investors have moved to the bonds market in search of relatively high returns, a  development that has made the bonds market active and liquid.

The federal government had projected to borrow a cumulative sum of N1.7 trillion to finance the 2020 budget. This represents an increase from the N1.6 trillion borrowed in 2019. 

Zainab Ahmed, the minister of finance, budget and national planning,  disclosed this last year at the presentation of the medium-term expenditure framework and fiscal strategy paper (MTEF/FSP) where N9.78 trillion was proposed for 2020 total budget. 

Explaining details on the draft of the 2020 to 2022 MTEF/FSP, Ahmed stated that the new borrowings would be 50% from an external source, while 50% would be from domestic sources. She confirmed that the debt service obligations for the country had also risen significantly as a result of increase in our national debt.

While speaking on the proposed 2020 budget of N9.78 trillion, the minister stated that oil revenue was projected to decline, while non-oil revenue was tipped to grow marginally. 

“Oil revenue is projected to decline from N3.688 trillion in 2019 to N2.367 trillion in 2020. This is due to lower production and lower oil prices. 

“New borrowing is put at N1.605 trillion for 2019, projected at N1.7 trillion for 2020, N1.6 trillion for 2021 and N1.3 trillion for 2022. The borrowings will be 50% local and 50% foreign,” she said.

Only on Friday, the DMO said Nigeria’s total debt stock stood at N26.22 trillion as of September 30, 2019.

The amount indicated that the total public debt rose by 2.02 per cent in the 12 months from September 2018, when the Federal Government, the states and the FCT owed a total of N25.7tn.

Patience Oniha, the director-general of the DMO, said this at a ‘Presentation on Public Debt to Stakeholders’ in Abuja.

She explained that the figures for December 2019 were not ready, adding that the DMO saw the need to make some clarifications concerning the country’s debt profile.

“There has been so much about debt in the public forum and we want to clarify some of the issues,” Oniha said.

Noting that the National Assembly approved all the borrowings made by the Federal Government, the DMO boss suggested that all Nigerians were collectively responsible for the debt since they were represented at the National Assembly.

She said, “Borrowing is not approved by one man. It is not determined by one man.

“Borrowing is not ad hoc – there are laws and laid down provisions for borrowing.”

She added that the public debt stock was cumulative, involving borrowings made by previous administrations.

The devaluation of the exchange rate, brought about by the economic downturn, considerably hiked the country’s debt profile, according to Oniha.

“Exchange rate devaluation increased external debt stock by over N1tn,” she noted.

Oniha explained that the total public debt as of September 2019 included promisory notes amounting to N821.65bn which had been issued to settle the Federal Government’s arrears to oil marketing companies and state governments