CEM REPORT, FINANCE| The Nigerian government has made significant progress in raising funds through domestic borrowing for the 2024 budget. As of May 2024, the Debt Management Office (DMO) has secured ₦4.5 trillion, exceeding the ₦4.18 trillion raised in the first quarter. This achievement highlights the growing importance of domestic securities in financing the government’s spending.
The DMO, led by Director-General Patience Oniha, has been actively issuing bonds throughout the year. In January, the government raised ₦418.19 billion, followed by a significant jump to ₦1.49 trillion in February with the issuance of two new FGN bonds. However, March saw a dip in borrowing, with only ₦475.67 billion raised despite a higher interest rate offered.
The trend reversed in April, with the government successfully raising ₦626.813 billion through the FGN bond auction. This represented a 32% increase compared to March, indicating renewed investor confidence.
DMO Emphasizes Market Strength
Speaking at an interactive session with primary dealers in Lagos, Oniha highlighted the resilience and sophistication of the Nigerian domestic market. She contrasted this with the challenges faced in other African markets. Notably, she revealed that the government raised ₦7 trillion through domestic borrowing in 2023, showcasing the market’s growing capacity.
“Last year, we raised N7 trillion as new domestic borrowing. It speaks to the size of the domestic market, its resilience, and its sophistication, unlike we have in many African markets.
“Out of the new domestic borrowing of six ₦7 trillion, we have raised ₦4.5 trillion. For the Ways and Means, out of ₦7 trillion approved for securitisation, we have raised ₦4.905 trillion. The financial sector has come a long way, and this is another strategic meeting to chart a way forward.”
Collaboration is Key: FMDA President
The President of the Financial Market Dealers Association (FMDA), Nadia Zakari, emphasized the importance of these interactive sessions between the DMO and market participants. These sessions foster informed decision-making by both parties as they navigate the remaining months of the fiscal year.
Zakari underscored the crucial role played by financial market dealers, who act as intermediaries between the DMO, investors, and other market operators. Continued collaboration is vital for the smooth functioning of the domestic debt market.
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If You Ask Me
While the progress in domestic borrowing is encouraging, there are still uncertainties to consider. It remains to be seen whether the government will be able to raise the remaining ₦1.5 trillion by the end of the year. Factors like global economic conditions, investor sentiment, and domestic interest rates will play a key role.
The DMO and market operators will need to work closely to ensure the government meets its borrowing target. Continued market engagement, competitive interest rates, and strategic bond issuances will be crucial to achieve this objective. The success of the domestic borrowing program will be critical for financing government spending and supporting economic growth in Nigeria.