1 trillion from domestic investors in the first year of President Tinubu’s administration, representing year-on-year YoY increase of 117 per cent from the previous year, prompting concerns over impact on the economy including likely additional pressure on inflation, increased debt service cost and higher borrowing cost from businesses.
FG’s borrowing through the monthly FGN Bond auctions, which constituted 32.8 per cent of total domestic borrowing during the period, rose, YoY by 42 per cent to N6.476 trillion in the 12 months ending May 2024 from N4.537 trillion in 12 months ending May 2023.GenCos cry out over N3.7trn debt, say only 10% of invoice paid monthlyFG’s borrowing through Sukuk Bonds, which accounted for 1.
In the same vein, the average interest rate on FGN Savings Bond rose to 17.91 per cent at the May 2024 auction from 10.89 per cent at the May 2023 auction.Notwithstanding the influence of the high interest rate regime, analysts expressed concern that the sharp rise in FG’s borrowing from domestic investors is harmful to the private sector as it makes it more costly for businesses to borrow.
“With respect to monetary policy, whilst the Central Bank continues on its hawkish trend, we expect pressure from the government on the Central Bank as its debt service costs rise. The government cannot afford to borrow at these levels for an extended period of time. Government spending can also lead to more pressure on the currency as it means more Naira available to chase the greenback.”
“The reason for the increase in value is due to the increase in MPR and the knock-on effect on interest rates for the FGN securities. “Money tends to fly to safety. Banks, other financial institutions and fund managers have little incentive to take-on riskier assets when they can get attractive returns lending the funds to the government.
“It can be assumed that the sustained rise in the MPR has been favorably received by the market and has stimulated increased participation in the domestic bond market.”Also commenting, Dr Muda Yusuf, CEO of Centre for the Promotion of Private Enterprise , said there is a general need to moderate borrowing so that it doesn’t overheat the economy.
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