The Federal Government is set to notch up its total domestic debt stock this week as it plans a N140 billion bonds auction on Wednesday, through the Debt Management Office (DMO).
But except the country’s revenue earning capacity improves, the deals will definitely worsen the weak record of revenue-to-interest payment ratio, despite the fact that total debt is adjudged far below the international threshold and the Gross Domestic Product level.
Specifically, DMO will sell a four-year maturity bonds worth N40 billion and N50 billion apiece for 2027 and 2037 maturity bonds through the usual Dutch auction system.
The Nigerian Bureau of Statistics, a few days ago, had estimated the country’s debt stock as at December 2016 at more than N17.5 trillion debt, which possibly has notched up with series of deals since January 2017.
Of the total debt, Federal Government accounted for about 69 per cent and about 79 per cent of the domestic debt, with N7.6 trillion, in bonds; N3.3 trillion in treasury bills; and N216 million in treasury bonds.
The offering of sovereign bonds has been a monthly activity to help fund government’s budget deficit, put at N2.3 trillion, support the local debt market and maintain a benchmark for companies to follow.
The last auction in April, suffered setback, as fewer bonds were sold contrary to expectations, due to investors’ demand for higher yields to make up for inflation.
Meanwhile, the Central Bank of Nigeria sustained its Treasury Bills (T-Bills) offering from Wednesday till weekend, at yields above inflation supplementing a run of dollar sales in a two-pronged effort to support up the local currency.
A poll of three financial market operators by The Guardian showed that the apex bank’s moves were read by the market as “aggressive liquidity mop-up” aimed at fighting inflation and dollar speculations.
“The banks were visibly looking for cash to back up their transactions at both ends-foreign exchange market and domestic debt market. Some even went to the CBN’s discount window to borrow money, even as Overnight interbank lending instrument hit 53 per cent,” trader said.
Treasury bills auction supports the local currency by reducing its quantity in circulation, making the naira slightly stronger against the dollar, with higher demand for transactions in the domestic debt.
At the weekend, the apex bank sold N18.88 billion in one-year treasury notes at 18.6 per cent, a premium to yearly inflation at 17.26 per cent in March, after it had earlier issued N200 billion in bills on Thursday, and N230.60 billion on Wednesday.
Although these T-Bills are more of rollover over debts at maturity, there are usually increments. Which form new deals in efforts to raise funds for government and moderate money in circulation as a foil to speculative attack on the naira and inflationary pressure.
Similarly, the nation’s foreign exchange reserves finally touched $31 billion, after a gradual but persistent add-ons in eight weeks, despite series of interventions and policy reforms in the sector.
Since late February 2017, when the regulator renewed its reform of the sector, which currently has significantly revived the fortunes of the local currency, an estimated $4.4 billion has been put into several interventions, although not all has matured.
The naira at the weekend, remained stable at the interbank market at N305.80 per dollar, while at the parallel market, the exchange rate remained at N391 per dollar in all trading sessions last week.
On Friday, CBN sold $388.66 million to authorised dealers, made up of $87.885 million for spot sales, while $300.8 million went to the forwards market mainly targeted at manufacturers and other real sector operators.
Acting Director, Corporate Communications Department, CBN, Isaac Okorafor, who confirmed the development, said the forwards market intervention was split into three tenors of $100.95 for 30-day; $110.48 million for 45-day; and $99.37 million for 60 days.
The bank’s spokesman the institution remained resolute in ensuring that it supplies enough forex to genuine customers, sustain liquidity in the market and expressed hope that the CBN will inch even much closer to its objective of convergence of the rates in the interbank and BDC segments.