The Federal Government would borrow between N260 billion and N390 billion in the first three months of this year, the Debt Management Office (DMO), said yesterday.
It said the long-term borrowing would come in five, 10 and 20-year local denominated bonds. The DMO said it would sell within the range of N40 to N60 billion in the bond maturing in 2020 in January and February and N20 to N30 billion of same tenor paper in March.
The debt body will issue within the range of N40 to N60 billion of the 2026 paper in each of the first three months of the year and N40 to N60 billion in a fresh 2036 paper in March. Nigeria said it will borrow about N900 billion locally to finance part of the N2.2 trillion deficits in its 2016 budget.
Analysts said the government’s proposed N6.08 trillion budget for the 2016 fiscal year, has N1.84 trillion deficit financing targeted mainly at infrastructure development to be funded through borrowing.
The DMO is constitutionally empowered to explore local and international funding sources to see effective funding of the budget. The debt body is expected to source the additional N1.84 trillion budget deficit cash for capital expenditure, N984 billion of which would come from local investors and N900 billion from international investors.
The Managing Director, Afrinvest West Africa Plc, Ike Chioke, said the performance of the Nigerian bond market was majorly bearish last week as investors freed up liquidity to meet up with the bond auction.
He said the market condition was also affected by increased mopped up exercise and foreign exchange intervention provisioning of last week. The action prompted the average bond yields to close last week at 10.7 per cent from an average of 9.8 per cent a week ago.
The sell-offs in the market was noticed across all bond tenors on all trading days. The bearish sentiments can be attributable to the decline in liquidity levels given the series of Central Bank of Nigeria (CBN) Open Market Operations (OMO) mop-ups that took place last week and the N136.2 billion worth of Treasury Bills auction that took place last Thursday.
“We expect an increase in average yields as the DMO embarks on its monthly bond auction for January together with further decline in market liquidity if the CBN continues its mop up activities,” he said.
Olakunle Ezun of Treasury & Research Unit, Ecobank Nigeria, explained that the drop in the Brent oil price has raised fundamental questions about naira outlook and viability of the 2016 budget. Oil price has fallen to $33.5/barrel from a high of $63.2/barrel about a year ago, representing a 47 per cent fall in 12 months.
He said global oil prices have fallen sharply over the past 18 months, leading to significant revenue shortfalls in many energy exporting nations, including Nigeria. From 2010 until mid-2014, world oil prices had been fairly stable at around $110/barrel. But since June 2014 prices have more than halved, thereby raising issues about the funding capacity of the fiscal authority.
Ezun said the N6.08 trillion 2016 budget proposal to the joint session of the National Assembly, seeks to stimulate the economy, making it more competitive by focusing on infrastructural development; delivering inclusive growth and prioritising the welfare of Nigerians. But the low oil prices might hinder the successful implementation of the budget.
An economist, Bismark Rewane said the budget focuses on funding infrastructure, which entails the provision of tangible assets, like housing, power (electricity), transport, education, communication, and technology, on which other intangibles can be built. It also seeks to protect the poor with a social safety net including scholarships and food provision in schools.