Data obtained by The Nation’s Economic Intelligence yesterday showed that the government has stepped up its borrowings across all instruments as risk-averse investors crowded around sovereign debt issuances.
The data indicated that the government overshot its borrowing calendar in most instances to mop up oversubscriptions to its offers.
The data indicated that the government raised N2.129 trillion between January and February 2023 through regular bond issuance, the retails savings bonds and treasury bills.
At this rate, the government may exceed its estimated domestic borrowings of N7.04 trillion for 2023.
Faced with sovereign downgrades by global rating agencies, with attendant higher risk profile and cost for international debt issuances, there were indications that the government might have narrowed down to the domestic capital market to raise N8.8 trillion regular debt component of the 2023’s N10.78 trillion deficit.
A breakdown showed that the government has raised N1.189 trillion this month, 26.4 per cent above the N940.62 billion raised in January 2023.
The total debt issuance in the past two months represents more than 50 per cent increase on the total debt issuance in the fourth quarter of 2022, according to data tracked by The Nation.
In January 2023, the government raised N662.617 billion through its regular bond auction, N277.468 billion through the Nigerian Treasury Bills (NTBs) and N533.03 million through the Federal Government of Nigeria Savings Bonds (FGNSBs), a retail monthly debt issuance introduced in 2017.
This month, the government raised N770.56 billion through bond auctions, N417.064 billion through NTBs and N1.271 billion through the FGNSBs.
Nigeria’s total public debt stood at N44.06 trillion in the third quarter of 2022, stirring a long-running national debate on the growing size of indebtedness and the burden of sustainability amidst declining national revenue.
The federal government 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 the privatisation of national assets.
While experts agreed that rising demand for sovereign debts provides the government with a comfortable fallback option, many analysts said the government’s domestic mop-up may crowd out other issuers and raise the cost of funds.
The February 2023 issuances illustrated the crowded demand for sovereign debts.
The transactional report for the February 2023 bond auction indicated that the bond auction received a total bid of N992.11 billion, about 176 per cent above the government’s offer size of N360 billion.
The 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 respectively.
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 February 2028 bond as against a total subscription of N296.214 billion, N51.12 billion to the undersubscribed 10-year FGN Apr 2032 bond, which recorded a 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 the N805.17 billion total subscription recorded in January 2023, an increase of 23.22 per cent.
Analysts attributed the increase in the subscription to an increase in liquidity and strategic portfolio positioning for the year.
According to analysts, the subscription for the long-tenured 2049 bond showed that more investors still prefer longer maturities despite the downgrade of the country’s credit rating.
Ahmed had raised the possibility of the higher budget deficit and financing in 2023, noting that “there is a continuing need to exceed this threshold considering the existential security challenges facing the country”.
She however said Nigeria has no plan to restructure its debt as the government remains committed to meeting its domestic and external debt obligations.
According to her, the 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 the revenue target. In 2019, it achieved about 59 per cent with a revenue budget of N7 trillion and an 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 an 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 of the Debt Management Office, Ms Patience Oniha, said beyond keeping within the debt-to-GDP ratio, it is important that the public debt is sustainable and the government can 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 a low revenue base was 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 its 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 countries 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 the 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 the 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.