The government will borrow N11 trillion through bonds and T-bills in four months

According to findings from The PONS

An analysis of performance on bonds and bills issued this year by the Central Bank and the Debt Management Office showed that the government had raised N3.1 trillion in FGN bonds and N7.92 trillion in government bonds between January and April 2024 , for a total sum of N11.2 trillion.

These bonds are crucial tools for the government’s debt management strategy and serve multiple purposes, including providing investors with a relatively safe investment option, helping manage the country’s debt profile and facilitating efficient fund management.

Specifically, government bonds and FGN bonds are classified as risk-free, theoretically zero risk, because it is assumed that the government always makes good on its debts. If not, they can print money to pay it back.

In January 2024, the Federal Government raised about N418.197 billion from the four bonds auctioned before realizing N1.49 trillion from two FGN bond offerings issued by the DMO in February, although below the target of N2.5 trillion .

In March 2024, the DMO raised about N475.67 billion in its March bond option, capitalizing on the current surge in rising interest rates, while the agency disclosed that the Federal Government raised N626.8 billion in its April 2024 FGN bond auction.

The amount is about 32 percent higher than the N475.67 billion raised at the March auction, indicating high market confidence in the sovereign credit.

For T-bills, a total of N1 bill was offered but was oversubscribed as investors put in as much as N2.3 trillion in January. The one-year bill offered for N600 billion included a huge subscription of N1.8 trillion, of which the central bank sold N908.7 billion.

The DMO sold banknotes worth N2.69 trillion at its auctions in March 2024, an increase of N11 billion in the value of treasury bills sold at auctions in February 2024 (N2.589 trillion).

The CBN also held a successful auction of T-Bills on April 24, 2024, raising about N362.45 billion across various maturities. This outcome shows that the market is interested in government bonds.

The amount raised came on the back of plans by the government to finance the 2024 budget deficit of N9.18 trillion and offset debt to clear the Ways and Means Advances.

According to the Minister of Finance, Wale Edun, the government had allocated about N4.83 trillion from the proceeds of Nigerian government bonds and bonds issued in 2024 to settle the ways and means of the CBN.

In response, an economics professor, Sheriffdeen Tella, in an interview with our correspondent, described bonds and treasury bills as viable solutions to raise funds while reducing foreign debt.

He said the fixed income securities play a dual role in raising funds for the government and clearing liquidity in the system.

“Bonds and government bonds are borrowing instruments of the government because when the government puts its bonds on the market, people, organizations and investors buy into them and that reduces the money supply. So, bonds and treasury bills play two roles: the role of raising funds for the government and the role of clearing liquidity in the system,” he said.

“Nigerians can earn more through the interest paid on these instruments. The bonds can be redeemed after a minimum of two years, while treasury bills can last three months, i.e. 91 days, six months and a maximum of one year, which is a shorter option. The CBN normally uses this to raise short-term funds for the government and undermine liquidity to reduce the money supply,” he added.

While the government has raised a substantial amount of money through these funds, experts suggest that Nigerians could raise more money by promoting greater financial literacy.

Chapel Hill Denham Director of Research and Strategy, Tajudeen Ibrahim, said many Nigerians do not take advantage of government bonds and bonds as an investment option due to their lack of financial literacy.

During a phone call, Ibrahim said the government could increase funding by focusing on raising public awareness of financial literacy and investment opportunities.

He said: “Let me start by saying that Nigeria is a country where financial literacy is still low. In a country where financial literacy is low, it should come as no surprise that many Nigerians do not take advantage of government bonds and debentures as an investment option. So it’s true that many Nigerians don’t do that, and there’s no way you can know how to do that if you don’t have financial literacy.

“Secondly, the regulatory authorities such as the CBN and the DMO on these securities have always tried to educate the public by advertising or making an announcement on the government bonds to be issued and interested investors should bid. But it’s hard for someone to identify them if they don’t have financial knowledge, and that’s the problem. How many Nigerians are aware of the FGN Savings Bonds? Nigerians do invest, but the reality is that Nigerians who are unaware of it far outnumber those who are aware and invested in it.”

He added: “Every month the government comes to the market to raise these funds. Portfolio managers, banks, insurance companies and other corporate investors are well aware of these matters. They follow it and get updates. They ask about it. So it is not a problem of institutions, but a problem of individuals and financial illiteracy, and that has to improve over time.”

Explaining the registration process, the economist explained that interested individuals could open an investment account with their favorite portfolio investors, financial institutions or insurance companies, and then provide instructions for investments in profitable bonds based on observed data and analysis.

“Interested Nigerians should go through their financial advisors, they can go through investment management companies. When they open an account with such investment firms, they deposit money into their investment account and can then instruct their asset management company to invest in government bonds or savings bonds to save for them, and in other available investment securities for which they qualify. to invest.

“Our company is such a management organization that can handle it. They will onboard them as customers and then start investing in them. They will also give them investment advice. Nigerians are of different ages and your age determines your risk appetite. We therefore expect older citizens to have a low risk appetite and younger citizens to have a high risk appetite. Investing in bonds and treasury bills is much cheaper than putting money in a savings account and yields much higher returns.”