March 23, 2023

Inflation pushes pension funds’ investment in FG bonds to N9.6trn

Breaking: Nigeria’s inflation rate hits 33.2% in March – NBS 

By Peter Egwuatu 

The sustained rise in inflation and interest rate has triggered significant rise in pension funds investments in Federal Government securities to N9.6 trillion in 2022, about 9.9 percent higher than N8.7 trillion recorded in 2021. Analysts said the rise will continue in 2023 given the continued rise in both inflation and interest rate.

The Federal Government securities include FGN Bonds, Treasury Bills, Agency Bonds, Sukuk, and Green Bonds.

Inflation has been on the rise in the past eight months hitting a 17 year high of 21.91 percent last month, while interest rate has equally been on the rise as the Central Bank of Nigeria, CBN, continues to hike Monetary Policy Rate, MPR, hitting 18 percent this week, in a bid to fight inflation.

The MPR is the benchmark for determining the interest rate charged by banks. 

Data available with Nigeria Pension Commission, PenCom, showed that after the 3.1 percent drop in the first quarter of 2022, Q1’22, investments in government securities began a steady rise following the inflationary pressures that began in the second quarter which was matched with interest rates hikes.

In Q2’22 the investment value increased to N9.007 trillion representing a growth of 5.9 per cent; in Q3’22 the investment value increased further by 2.1 per cent to N9.192 trillion while in Q4’22 the investment value rose by 2.7% to N9.644 trillion.

Analysts’ comments

Commenting on this development, analyst and Head of Investment and Research at Fidelity Securities Limited, FSL, Mr Victor Chiazor, said: “The rise in PFAs’ investments in Federal Government securities over the last one year was triggered by the high interest rate regime following the increase of the MPR by the CBN to tame rising inflation.

“We expect PFAs investment in Federal Government securities in the first quarter of the year to continue to grow but investments in equities will be based on the yield environment, performance of the equities market during the year and the post political dynamics in the year.”

In his own part, analyst and Managing Director/CEO of APT Securities and Funds Limited, Mallam Garba Kurfi, said: “The Investment in FGN Bonds by PFAs is necessary because of its availability and risk free when compared with the other securities. “Most aged people prefer their money to be invested in less risky assets; more than N7.9 trillion in the Nigerian financial market were invested into bonds. There are no any available instruments to invest like Bonds with high interest rate.

“There is a need for more financial products that can give alternative and provide high return like Bonds in the financial markets in order to attract pensions funds investments”