THERE are indications that the Federal Government’s domestic borrowing will further escalate in the second half of the year, H2’21, as records show additional N680 billion, a huge 20.6 percent jump to N3.98 trillion from first half, H1’21, closing figure of N3.3 trillion.
This is also coming at the backdrop of a modified deficit funding plan accompanying the just concluded supplementary budget.
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The FG modified 2021 fiscal plan provided a supplementary revenue projection of about N135 billion on a total supplementary expenditure of N982.7 billion, an indication that the supplementary budget would increase the annual deficit by N847.729 billion.
The Supplementary Appropriation also indicated that the deficit would be financed through a debt of about N802.102 billion; aid/grants N6.045 billion; and restructured loans of N39.582 billion.
The FG has a N5.6 trillion fiscal deficit in the initial 2021 budget and with the inherent deficit in the supplementary budget the combined fiscal deficit for 2021 now hovers around N6.5 trillion. This is about 16.1 percent above the initial plan and approximately same level with 2020 actual deficit.
Among other things the FG plans to borrow N3.1 trillion from local investors to fund the N6.5 trillion fiscal deficit of 2021, while the balance will be funded through external borrowing.
Debt market strategy
To attract lending from local investors and thus achieve its domestic borrowing target for the year, the FG through the Central Bank of Nigeria (CBN) and the Debt Management Office (DMO) increased interest rates on the FGN Bonds and Nigeria Treasury Bills (NTB) and the FGN Savings Bonds.
Consequently, the CBN increased the stop rate on 364-Days treasury bills by 6,990 basis points (bpts) to 8.2 per cent in June 2021 from 1.21 per cent in December 2020. The apex bank also increased the stop rate on the 182-Days bills and 91-Days bills by 2,500 and 2,000 bps respectively to 3.5 per cent and 2.5 per cent in July from 1.0 and 0.5 per cent in December 2020.
On its part, the DMO increased the stop rates on the 15-Years and 25-Years FGN Bonds by 6,300 and 6,250 bpts respectively to 13.2 per cent and 13.25 per cent in July 2021 from 6.9 per cent and 7.0 per cent in December 2020.
The DMO also increased the interest rate (coupon) on the 2-Years and 3-Years Savings Bonds by 7,030 and 7,530 bpts respectively to 8.35 per cent and 9.35 per cent in June 2021 from 1.32 per cent and 1.82 per cent in December 2020.
This development led to the 2.3 per cent increase in total sales (allotment) of the three debt instruments to N3.98 trillion in 7MTH-21 from N3.89 trillion in 7MTH-2020.
Financial Vanguard analysis showed that the FG borrowed N1.66 trillion through FGN Bonds, N2.31 trillion through NTBs and N5.82 billion through Savings in 7MTH-21.
FGN Bonds details
Total FGN bonds sold in 7MTH-21 rose, YoY, by 7.1 per cent to N1.66 trillion from N1.55 trillion in 7-MTH-2020.
Analysis of the bond