Budget Deficit: FG Raised N41.64bn via Saving Bonds in Three Years

Kayode Tokede

As the federal government continues to borrow from local investors to bridge budget deficit, the government’s exposure to savings bonds alone grew by a total of N41.64 billion between 2021 and 2023, THISDAY investigations has revealed.

Over the years, investors’ patronage for FGN savings bond auction increased as it serves as alternative means of investment and lending to the government to finance key infrastructure, among others.

The government’s resort to Savings Bond reached a new high in 2023 as a total of N16.77 billion was borrowed from local investors since the initiative was launched in 2017. The growth was influenced by higher interest rate compared to the interest rate on Treasury bills (TBs) amid double-digit inflation rate.

The interest rates on FGN Savings in 2023 ranged between 9.6 per cent and 13.287 per cent.

However, in contrast, the Federal Government raised about N6.658 trillion through treasury bills in the same year, an indication of the level of importance placed on both short-term debt instruments. 

Findings by THISDAY showed that average interest rates offered on 2-year and 3-year Saving Bonds in 2023 was a double-digit rate as against an average single interest rate between 2022 and 2021 respectively.

In 2022, the total allotment for FGN Savings Bonds was at N16.59billiion, representing an increase of 100.46 per cent from N8.28billion reported by the Debt Management Office (DMO) in 2021.

The appetite for FGN Saving Bonds indicates that Pension Funds Administrators (PFAs), and Nigerian investors prefer investment instruments with less volatility that assures them of their capital returns albeit with low yield on investment.

The debt office has unveiled the initial bond offering for 2024, comprising two FGN savings bonds, available for subscription.

DMO disclosed that the two-year FGN savings bond due on January 17, 2026, at the interest rate of 11.033 per cent per annum and three-year FGN savings bond due on January 17, 2027, at the interest rate of 12.033 per cent per annum.

According to the DMO, the opening date is scheduled for January 8, concluding on January 12, with settlement slated for January 17. Additionally, coupon payments are expected on April 17, July 17, October 17, and January 17. 

FGN Savings Bonds are offered at N1,000 per unit subject to a minimum subscription of N5,000 and in multiples of N1,000 thereafter, subject to a maximum subscription of N50 million.  Interest is payable quarterly while bullet repayment (principal sum) is on maturity.

FGN savings bonds are considered investment options for trustees under the Trustee Investment Act. They also count as government securities, making them eligible for tax exemption for pension funds according to the Company Income Tax Act (CITA) and Personal Income Tax Act (PITA). 

These bonds are listed on the Nigerian Exchange Limited (NGX), and they are seen as liquid assets when banks calculate their liquidity ratio.

Responding to THISDAY enquiry on the matter, the Vice President, Highcap Securities Limited, Mr. David Adnori stated that bonds by federal government are oversubscribed over current liquidity surplus in the financial system, stressing that institutional investors continually look for new avenues to invest funds from maturing securities, coupons and dividend receipts, and new AUMs generated.

According to him, “This is in addition to the fact that FGN bonds are essentially risk-free. Notably, Nigerian pension funds are willing takers of FGN debt. Nigerian pension funds have historically favoured government debt as an asset class due to the paucity of good quality investable securities available to them. Other related reasons include the relative lack of depth of the equities market, portfolio safety considerations, and strict investment guidelines by the industry regulator.”

 The federal government’s rapid borrowing raises concerns about the growing stock of public debt, which presently stands at N44.06 trillion or $101.91 billion in third quarter 2022 from N42.84 trillion or $103.31 billion in second quarter of 2022.

Commenting on federal government debt profile, Chief operating officer of InvestData Consulting Limited, Mr. Ambrose Omordion said the FG had notified the general public of borrowing more in 2023.

According to him, “With all the volatility and foreign exchange issues, it makes sense to borrow at the domestic market rather than borrowing from the international market. It is all a reflection of our macro economy environment challenges and weak fiscal policy of the government. All these borrowings is a reflection of the weak financial position of the government and it will continue like that.”

He noted that the subscription to FBN Saving Bond is a lucrative investment, stressing that the low risk involved attracted investors.

He added that, “Anything sovereign has the lowest risk and nothing will go wrong with it except the country is collapsing completely. All over the world, sovereign bonds have the lowest risk and secondly it is an investment outlet for investors to invest their money.”