By Babajide Komolafe

Pressured by widening fiscal deficit worsened by weak revenue inflow, the Federal Government took advantage of investors’ appetite for higher interest rate to increase  domestic borrowing in the first half of the year (H1’21) by 3.9 per cent, year-on-year, to N3.3 trillion from N3.18 trillion in the corresponding period of 2020 (H1 ‘2020).

The Federal Government (FG) has a N5.6 trillion fiscal deficit in the approved Budget 2021 and N859.4 billion in the recently approved Supplementary Budget 2021, hence a combined fiscal deficit of N6.5 trillion for 2021. This represents 25 per cent increase when compared with the projected fiscal deficit of N5.2 trillion in the revised Budget 2020.

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.

To attract lending from local investors and thus achieve its N3.1 trillion domestic borrowing target for the year, the Federal Government (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 7,940 basis points (bpts) to 9.15 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 June 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 6,600 and 6,700 bpts respectively to 13.5 per cent and 13.7 per cent in June 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 7,570 and 8,070 bpts respectively to 8.89 per cent and 9.89 per cent in June 2021 from 1.32 per cent and 1.82 per cent in DEcember 2020.

This development led to the 3.9 per cent increase in total sales (allotment) of the three debt instruments to N3.3 trillion in H1’21 from N3.18 trillion in H1’2020.

Financial Vanguard analysis showed that the FG borrowed N1.42 trillion through FGN Bonds, N1.89 trillion through NTBs and N4.8 billion through Savings in H1’21.

FGN Bonds

Total FGN bonds sold in H1’21 rose, YoY, by 3.0 per cent to N1.42 trillion from N1.37 trillion in H1’2020.

Analysis of the bond auction results showed that while the DMO increased the amount of bonds offered by 46 per cent, YoY, to N900 billion in H1’21 from N615 billion in H1’2020, the amount of bonds demanded by investors (total public subscription ) fell by 27 per cent, YoY, to N1.79 trillion in H1’21 from N2.45 trillion in H2’20202.

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As a result, oversubscription to the bond offerings fell to 99 per cent in H1’21 from 298 per cent in H1′ 2020.

The DMO offers three types of FGN bonds, namely 10-yrs, 15-yrs and 25-yrs FGN bonds.

The 10-yrs bond recorded 24 per cent oversubscription in H1 ’21, as investors demanded for N372.28 billion worth of bonds while the DMO offered and sold N300 billion and N220.95 billion respectively.

The 15-yrs bond recorded 98 per cent oversubscription in H1 ’21 as investors demanded for N592.82 billion worth of bonds while the DMO offered and sold N300 billion and N356.95 billion respectively.

The 25-yrs bond recorded 174 per cent oversubscription in H1 ’21 as investors demanded for N824.3 billion worth of bonds while the DMO offered and sold N300 billion and N546.1 billion respectively.


Total NTBs (bills) sold by the CBN in H1’21 rose, YoY, by 4.0 per cent to 1.89 trillion from N1.82 trillion in H1’2020.

Analysis of the NTB auction results showed that the CBN increased the amount of bills offered by 26 per cent, YoY, to N1.98 trillion in H1’21 from N1.45 trillion in H1’2020, the amount of bills demanded by investors (total public subscription) rose by 15 per cent, YoY, to N3.53 trillion in H1’21 from N3.06 trillion in H2’2020.

However, the oversubscription to the bills offered fell to 79 per cent in H1’21 from 110 per cent in H1′ 2020.

The CBN offers three types of NTBs, namely 91-Days, 184-Days and 364-Days bills.

The 91-Days bills suffered sharp decline in patronage due to the low interest rate offered by the CBN which stood at 2.0 per cent at the end of June 2021.

Consequently, investors’ demand (total subscription) similarly fell by 62 per cent to N164.7 billion in H1’21 from N431 billion in H1’2020.

Similarly, the CBN reduced the amount offered by 12 per cent to N142.8 billion in H1’21 from N163 billion in H1’2020, while the amount sold  also fell  by 23 per cent to N166.5 billion in H1’21 from N218 billion in H1’2020.

However, the 184-Days bills attracted increased patronage, as investors’ demand rose by 32 per cent to N656 billion in H1’21 from N497 billion in H1’2020.

Though the CBN similarly increased the amount offered by 158 per cent to N536 billion in H1’21 from N208 billion in H1’2020, it however reduced the amount sold by 15 per cent to N423 billion in H1’21 from N496 billion in H1’2020.

The 364-Days NTBs also recorded an increase in patronage as investors’ demand rose by 27 per cent to N2.71 trillion in H1’21 from N2.13 trillion in H1’2020.

The CBN similarly increased the amount of bills offered and sold by 20 per cent and 15 per cent respectively to N1.3 trillion.

Savings Bonds

The Savings Bonds sold by the DMO in H1’21 rose sharply by 114 per cent  to N4.86 billion from N2.27 billion in H1’2020.

The DMO offers two types of FGN savings bonds namely 2-Years Savings Bond  and the 3-Years Savings Bonds.

Reflecting increased patronage occasioned by the 7,570 bpts increase in interest rate to to 8.89 per cent  from 1.32 per cent, the amount of 2-Year Savings Bonds sold by the DMO rose by 98 per cent to N1.64 billion in H1’21 from N828 million in H1’202.

Similarly, the amount of 3-Years Savings Bonds sold by the DMO rose by 123 per cent to N3.22 billion in H1’2020 from N1.45 billion in H1’2020.

The above trend, according to investment analysts, will persist in the second half of the year (H2’21).

While  projecting  sale of N2.2 trillion and N1.3 trillion respectively for NTBs and FGN bonds in H2’21, analysts at CardinalStone Research said: “The Medium Term Expenditure Framework (MTEF)  estimates the 2021 budgetary deficit at N5.6 trillion, which is to be partly funded by domestic and foreign borrowings in equal proportion.

“This distribution implies that targeted local borrowings approximate  N2.3 trillion, or N3.1 trillion if you account for the domestic portion (N722.5 billion) of the new supplementary budget of N895.8 billion. In H1’21, the combined net issuances of bonds (N1.4 trillion) and NTBs (N350.9 billion) amounted to N1.8 trillion which is 57.6 per cent of proposed domestic fiscal borrowings for 2021. At that rate, a combined net issuance of N1.3 trillion in H2’21 would be needed to meet the domestic budgetary borrowing target for 2021.

“However, we note that the 2035 and 2050 instruments (conduits for c.80.4% of the last FGN bond raise in H1) are discount bonds, suggesting that the net issuances may have to be much higher than N1.3 trillion. Assuming the 35.2 per cent  excess issuance over maturities in H1’21  subsists, our overall prediction for gross issuance at the NTB and bond fronts is N2.2 trillion and N1.3 trillion, respectively, for H2’21.”

Highlighting  the factors that will enhance  demand for fixed income instruments  (dominated by FGN bonds and NTBs) in H2’21, analysts at United Capital Plc said: “Following evaluation of the several factors expected to shape the financial markets in H2-2021, we harmonise these factors and provide our expectations for the equities market and the yield environment as well as our preferred strategies. We expect to see periods of oscillation in the yield environment, albeit with an overall downward bias.

“Our expectation is built on three key factors; improved system liquidity via instrument maturities, deployment of financial repressive tactics by sovereign debt managers and status quo stance on monetary policy.

“That said, despite our expectation of a moderation in fixed income yields, we do not see a rate crash similar to that of 2020. As a result, we expect demand for fixed income instruments to remain upbeat particularly among domestic investors, limiting prospects for improved flows to risk assets like equities.”

Analysts at Afrinvest Securities however lamented the impact of increased borrowing activities of the FG on its debt service burden, stressing the need for measures to prevent the nation from falling into another debt trap.

They said: “Going forward, we project FG’s actual revenue for 2021 to settle around ?5.8 trillion as against the  budgeted amount of ?7.9 trillion, while we estimate debt service to print around ?3.7 trillion as against the  budgeted amount of  ?3.1 trillion. This will translate to a debt-service-to-revenue ratio of about 63.8%, as against 35.2 per cent  stipulated in the budget. “Hence, we recommend that the FG prioritize expanding its revenue base, reduce the size of government to curtail recurrent expenditure, and ensure proper deployment of borrowed funds to prevent falling into another debt trap.”

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