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FG Borrows ₦‎11 Trillion Via Bonds, T-Bills In Four Months

The Federal Government has raised a total sum of N11tn through auctions and sales of Treasury bills and saving bonds issuance in four months, according to findings by The PUNCH

An analysis of bonds and bills results issued this year by the Central Bank and the Debt Management Office showed that the government had raised N3.1trn in FGN bonds and 7.92trn in T-bills between January and April 2024, totalling N11.2trn.

These bonds, being crucial instruments for the government’s debt management strategy, serve multiple purposes, including providing investors with a relatively safe investment option, assisting in managing the country’s debt profile, and facilitating efficient fund management.

Specifically, treasury bills and FGN bonds are classified as risk-free, theoretically zero risk, because the government is assumed to always make good on its debts. If not, they can print money to pay it back.

In January 2024, the Federal Government raised about N418.197bn from the four bonds that were auctioned before realising N1.49tn from two FGN bond offers issued by the DMO in February though below the target of N2.5tn.

In March 2024, the DMO raised about N475.67bn in its March bond option capitalising on the current rally in rising rates while the office disclosed that the Federal Government raised N626.8bn in its April 2024 FGN bond auction.

The amount is about 32 per cent higher than the N475.67bn raised in the March auction indicating high market confidence in the government’s credit.

For T-bills, a total of N1tn was on offer but was oversubscribed as investors staked a whopping N2.3tn in January. The one-year bill on offer for N600bn recorded a massive N1.8tn subscription out of which the central bank sold N908.7bn.

The DMO sold bills valued at N2.69tn across its auctions in March 2024 an increase of N11bn in the value of T-bills sold across auctions in February 2024 (N2.589tn).

The CBN also conducted a successful T-Bills auction on April 24, 2024, where about N362.45bn was raised across various maturities. This outcome demonstrates the market’s appetite for government securities.

The raised amount came amidst plans by the government to fund the 2024 budget deficit of N9.18tn and offset debts to settle the Ways and Means Advances.

The government had allocated approximately N4.83tn from the proceeds of Nigerian Treasury Bills and Bonds issued in 2024 to settle the Ways and Means Advances from the CBN, according to the Minister of Finance, Wale Edun.

Reacting, a professor of Economics, Sheriffdeen Tella, in an interview with our correspondent, described bonds and treasury bills as viable solutions to raise funds while reducing foreign debts.

He said the fixed-income securities play a twin role in raising funds for the government and mopping up liquidity in the system.

“Bonds and treasury bills are instruments of borrowing by the government because when the government floats its bond, people, organisations and investors buy into it and that reduces the money supply. So, bonds and treasury bills play two roles: The role of raising funds for the government and the role of mopping up liquidity in the system,” he said.

“Nigerians can earn more via the interest rate paid on these instruments. The bonds can be paid after a minimum of two years while treasury bills can be three months, that is 91 days, six months and a maximum of one year and that is a shorter option. The CBN normally uses that to raise short-term funds for the government and to mop liquidity to reduce money supply,” he added.

Although the government has raised a substantial amount via these means, experts suggest that Nigerians could raise more funds through increased promotion of financial literacy.

The Director of Research and Strategy at Chapel Hill Denham, Tajudeen Ibrahim, said many Nigerians were not taking advantage of treasury bills and bonds as an investment opportunity due to low financial knowledge.

While speaking in a telephone conversation, Ibrahim said the government could increase funding by focusing on improving public awareness of financial literacy and investment opportunities.

He said, “Let me start by saying that Nigeria is one country where financial literacy is still low. So in a country where financial literacy is low, you should not be surprised that many Nigerians are not taking advantage of treasury bills and bonds as an investment opportunity. So, it is true that many Nigerians don’t and there is no way you can know how to do it if you are not financially knowledgeable.

“Secondly, the supervising authorities like the CBN and the DMO of these securities have always tried to educate the public by advertising or creating a notice on the T-bills to be issued and interested investors should bid. But it is difficult for someone to identify them if they are not financially knowledgeable and that is the problem. How many Nigerians are aware of the FGN saving bonds? Nigerians do invest but the reality is that Nigerians who are not aware of it are a lot more than those who are aware of it and invest in it.”

He added, “Every month, the government comes to the market to raise these funds. Portfolio managers, banks, insurance companies and other corporate investors are savvy about these things. They follow it and get updates. They ask about it. So it is not a problem of institutions but a problem of individuals and financial illiteracy and that has to improve over time.”

Explaining the registration process, the economist explained that interested individuals could open an investment account with their preferred portfolio investors, financial institutions, or insurance companies, and then provide instructions for investment in profitable bonds based on observed data and analysis.

“Interested Nigerians have to go through their financial advisers, they can go through investment management businesses. When they open an account with such investment businesses, they will deposit money in their investment account and then they can give their assets management company instruction to invest in treasury or saving bond bills for them and other investment securities that are available to which they are eligible to invest.

“Our company is one of such management organisations that can handle it. They will onboard them as customers and then begin to invest in them. They will also offer investment advice to them. Nigerians are of different ages and your age determines your risk appetite so we expect older citizens to have a low-risk appetite and younger ones to have a high-risk appetite. Investing in bonds and treasury bills is a lot more beneficial than keeping their money in a savings account and is highly more rewarding.”