The Federal Government’s total debt stock may experience a significant increase from N87.3tn (as of December 2023) to N111.4tn, following fresh borrowings in the first quarter of 2024.
According to an analysis by The PUNCH, the Federal Government borrowed over N7tn via fixed income instruments as well as the first tranche of $2.25bn from a $3.3bn Afreximbank loan in the first quarter of the year.
The local borrowings comprised funds raised via Treasury Bills, FGN Bonds and Savings Bonds as the Federal Government tapped domestic borrowing sources following a topsy-turvy exchange rate crisis that bedevilled the economy in the early exchanges of the year.
Last month, in its updated ‘Total Public Debt Portfolio,’ the Debt Management Office said Nigeria’s total debt had increased to N97.3tn.
This figure, however, included local and external debts owed by all 36 states and the Federal Capital Territory.
According to the data, the Federal Government’s total debt stock stood at N87.3tn. That is, N53.2tn in local debt and N34tn in foreign debt. The sub-national government’s debt was about N10tn.
The DMO said the Central Bank of Nigeria’s official exchange rate of US$1 to N899.393 as at December 31, 2023 was used in converting external debt to naira.
However, in the first quarter of the year, the Federal Government, furtherance to its objective of shoring up the N9.18tn deficit in its 2024 budget, tapped local sources and borrowed over N7tn via the fixed income market.
In January 2024, the Federal Government raised about N418.197bn from the four bonds that were auctioned.
In February, it realised N1.49tn from the two FGN bond offer issued by the DMO below the target of N2.5tn.
The DMO, again floated a N450bn from its third FGN bond auction of 2024. The bond auction date was March 18, 2024, with a settlement date of March 20, 2024.
Also, in February, the DMO issued N2.43bn worth of Savings bonds at 12.751 per cent and 13.751 per cent for the 2-year and 3-year bonds respectively.
In March, it also raised about N2.9bn worth of Savings Bonds at a rate of 15.097 per cent and 16.097 per cent for the 2-year and 3-year bonds respectively.
During the period in review, the Federal Government raised the bulk of its debt via Treasury Bills. The total subscription for the quarter stood at N21.17tn as higher interest rates attracted investors. However, the CBN’s total sales amounted to about N5.64tn.
The most recent auction on March 27, 2024, witnessed a total subscription of over N2.62tn across the 91, 182, and 364-day tenors. The total sales for this auction amounted to over N1.19tn.
On the foreign scene, Nigeria, in January successfully arranged a syndicated US$3.3bn crude oil prepayment facility from the African Export-Import Bank. The loan was sponsored by the Nigerian National Petroleum Company Limited.
An initial disbursement of US$2.25bn has been made. A second tranche of US$1.05bn is expected to be disbursed next month.
The five-year facility carries a margin of 6.0 per cent per annum above the 3-month secured overnight financing rate.
The transaction structure has an embedded price balance mechanism where 90 per cent of all excess cash from the sale of the committed barrels (after debt service) will be released while the balance of 10 per cent will be used to prepay the facility, effectively shortening the final maturity of the facility and freeing cashflow from future pledged cargoes for use by Nigeria.
The initial participating lenders are Afreximbank, Africa’s multilateral trade finance institution, Gunvor International BV, a Geneva-based multinational energy and commodities trading company and Sahara Energy Resources Limited, an African-owned, leading international energy and infrastructure conglomerate.
Based on the new borrowings recorded in the first quarter of the year and the effect of naira depreciation on external debt, the Federal Government’s total debt may witness a significant jump to N111.4tn.
This indicates a 27.6 per cent increase from the N87tn recorded by the end of 2023. With plans to leverage more domestic and external borrowing sources already in the pipeline, the figure is likely to record a considerable increase by the end of the second quarter of the year.
While speaking with Bloomberg in January, the Minister of Finance and Coordinating Minister of the economy, Wale Edun, had said that Nigeria was exploring the possibility of obtaining a $1.5bn loan from the World Bank this year.
“We’re hoping to get $1bn or $1.5bn from the World Bank for budgetary support,” Edun told Bloomberg.
Last month, the Federal Government enlisted the expertise of leading global investment banks, including Citibank NA, JPMorgan Chase & Co, and Goldman Sachs Group Inc., to guide its forthcoming Eurobond issuance.
It also appointed Standard Chartered Bank and the Lagos-based financial advisory firm Chapel Hill Denham to consult on this venture.
The Eurobond issue which would be the first since 2022, marks the country’s return to the international bond market after a two-year pause. In March 2022, the country raised $1.25 billion through Eurobond issuances.
This development, as reported by Bloomberg and informed by sources close to the transaction, underscores the intent of Africa’s leading oil-producing nation to re-engage with global financial markets in order to bolster its fiscal budget.
SOURCE: PUNCHNG
