Budget Deficit: How FG Raised N28.62trn via Savings Bonds in 3 Years

As the federal government continued to borrow from local investors to bridge budget deficit, the government’s exposure to savings bonds alone grew to N28.62 trillion between 2020 and 2022,

THISDAY analysis bond auction numbers during the period showed a sharp increase in investors’ patronage for FGN Savings Bond in 2022. 

The 2022 patronage is the highest since the FGN Savings Bond was launched in 2017 and it was driven by higher interest rate compared to the interest rate on Treasury bills (TBs) amid 21.34 per cent inflation rate.

The Debt Management Office (DMO) in 2017 launched FGN Saving Bond for retail investors that guaranteed interest payment and repayment of the principal.

Furthermore, the FGN Saving Bond was introduced to deepen the national savings culture and diversify funding sources for the government.

The FGN Savings Bonds are issued monthly in tenors of 2 and 3 years.

A breakdown revealed that local investors investment in the FGN Savings Bonds rose by 97.6 per cent Year-on-Year, (YoY) to N16.59 trillion in 2022, from N8.4 trillion in the corresponding period of 2021.

The DMO in 2020 had raised a sum of N3.67 trrillion and the amount raised was truncated by COVID-19 pandemic as the FGN savings was offered only 8 times.

Meanwhile, the coupon rate on 2-year and 3-year FGN Savings Bond rise to 12.255 per cent and 13.255 per cent in December 2022 above the 7.322 per cent  and 8.322 per cent  interest rate offered in 2021.

In 2020, the coupon rate on 2-year and 3-year FGN Savings Bond closed December at 1.320 per cent and 1.820 per cent from 7.144 per cent and 8.144per cent the DMO offered in January 2020.

THISDAY analysis showed that investment in 2-year FGN Saving Bond rose by 96.3 per cent YoY to N5.04 trillion in 2022 from N2.57 trillion in 2021.

Similarly, investment in the 3-year FSB rose by 98.17 per cent YoY, to N11.54 trillion in 2022 from N5.83 trillion in 2021.

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

Responding to THISDAY enquiry on the matter, the Head, Equity Research, FBNQuest , Tunde Abidoye stated that bonds by federal government are oversubscribed over current liquidity surplus in the financial system, stressing that institutional investors continue to look for new avenues to invest funds from maturing securities, coupons and dividend receipts, and new AUMs generated.

According to him, “This is in addition to the fact that FG bonds are essentially risk-free. Notably, Nigerian pension funds are willing takers of FGN debt. 

“Nigerian pension funds have historically favored government debt as an asset class due to the paucity of good quality investible securities available to them. Other related reasons include the relative lack of depth of the equities market, portfolio safety considerations, and strict investment guidelines by the industry regulator.”

The federal government’s rapid borrowing raises concerns about the growing stock of public debt, which presently stands at N44.06 trillion or $101.91 billion in third quarter 2022 from N42.84 trillion or $103.31 billion in second quarter of 2022.

Speaking on the development, an economist and Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, said the FG had notified the general public of borrowing more in 2022.

According to him, “Since we have a deficit of N6.3trillion and you also have an additional subsidiary budget of N4 trillion, naturally it has soar up the deficit and it is easier to raise money locally than raising it at the international market.  Domestic borrowing is a low- hanging fruit.

“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.”

He noted that the oversubscription to FBN Saving bond is a lucrative investment, stressing that the low risk involved attracted investors.

He added that, “Anything sovereign has the lowest risk and nothing will go wrong with it except the country is collapsing completely. All over the world, sovereign bonds have the lowest risk and secondly it is an investment outlet for investors to invest their money.”

Meanwhile, the DMO on Monday said the 2-year note due February 15, 2025, at a coupon rate of 10.0 4 per cent, and the 3-year note maturing on February 15, 2026, is selling at a coupon rate of 11.04 per cent.

The interest would be paid to subscribers every quarter, according to the statement issued by DMO on Monday, stating that the bond can be purchased from any of the stockbroking firms it appointed as distribution agents.

The opening date for the offer is February 6, closing date February 10, settlement date is February 15, and coupon payment dates are May 15, August 15, November 15 and February 15.

According to the guidelines, retail investors looking to invest in the FGN Saving Bond only need a minimum of N5,000 to invest. Subsequent investment over N5,000 will be in multiples of N1,000. Meaning that investors cannot invest N5,500 or N12,700. It’s either N6,000 or N13,000 or N30,000. The maximum amount a single retail investor can invest in the FGN Saving Bond is N50 million.

The bonds have a tenor of 2 and 3-year respectively. Meaning that investors can either invest in an FGN Savings Bond with a duration of 2-year or one with a duration of 3-year and the interest rates are determined by the DMO.


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