Analysts have expressed displeasure over the Federal government‘s plan to borrow N984 billion domestic for 2016 budget deficit, saying that it will weaken the nation’s equities market this year.
President Muhammadu Buhari had announced the highest deficit of N2.22 trillion, additional amount needed to complete the N6.08 trillion budgeted for 2016.
The breakdown of the N2.22 trillion includes N900 billion accessed through foreign borrowing; N984 billion through domestic borrowing and N380 billion misappropriated funds recovery and others.
Analysts who spoke with Nigerian NewsDirect said key major role of Nigerian Stock Exchange (NSE) is to support the government in bond raising exercise, stressing that the impact would crowd out high network and foreign investors from the equities market.
Managing Director, Highcap Securities Limited, Mr. David Adonri, noted that government’s excessive domestic borrowing may trigger investors’ divestment to bond market and dump the equities market in 2016.
According to him, “The President Buhari-led economy team’s borrowing of N984 billion will further enhance the bond market but negatively affect the equities market.
“With the high volume of bond expected to be bought this year, there is no way the interest rate will not be high in the debt market.
“As it is expected, Investors are set to diversify from equities market to bond market due to high interest rate,” he said.
He expressed optimism that if the budget is properly factored into the economy, “sectors in the capital market will rebound,” Adonri noted.
The Chief Relationship Officer of Foresight Securities and Investment Limited, Charles Fakrogha, supported Adonri’s option and expressed delight over government plans to raise domestic capital through The Exchange.
According to him, “ it will encourage the Federal government to raise bond through the capital market because The Exchange has a very strong vibrant market.
He urged investors to always invest across all the assets class which include debt market, equities market and Exchange Traded Funds and Real Estate Investment Trust (REIT).
“I believe government is trying to take to our advice by accessing the N984 billion through the bond market which is the only way to bring confidence to debt segment of the market through patronizing.
“For FG to access the bond market, it will attract more investors in the debt market and improve liquidity circulation in the capital market,” he stated.