The Federal Government’s plan to borrow about N720 billion through FGN bond auctions in the third quarter, Q3’22, has come under fresh threat following increasing investors’ appetite for higher yields triggered by the adoption of tight monetary policy of the Central Bank of Nigeria, CBN.
Recall that the CBN, in response to the five consecutive months rise in inflation rate to 18.6 per cent in June, launched a tight monetary policy regime May, 2022, raising the Monetary Policy Rate, MPR, first by 150 basis points to 13 per cent in May and again by 100 basis points to 14 per cent in July.
This development effectively spurred increases in money market yields while intensifying investors’ appetite for higher returns across all instruments in all segments of the market.
Consequently, the first under-subscription was recorded in FGN bond auction this year, as the auction held in July recorded 37 per cent under subscription and as a result, Debt Management Office, DMO could not achieve its sales target.
According to the FGN bond auction calendar for Q3’22 released by the Debt Management Office, DMO, the FG plans to raise between N630 billion and N720 billion during the quarter.
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The calendar shows that the FG, through the DMO, seeks to raise between N210 billion and N240 billion in each of the three months in the quarter, through subscription in three tranches of 10-year, 10-year, and 20-year original tenor respectively.
But the N225 billion FGN bond offered by the DMO at the July auction recorded 37 per cent under subscription as total subscription stood at N142 billion.
Though the 20-year bond, 13.00% FGN JAN 2042, recorded 40 over subscription, as subscription stood at for N104.92 as against N75 billion offered by the DMO, the 3-years 13.53% FGN MAR 2025 and 10-years 12.50% FGN APR 2032, recorded 84 per cent and 66 per cent under subscription respectively, as subscriptions stood at N11.75 billion and N25.62 billion respectively as against N75 billion offered for each bon tenor.
Consequently, the DMO could only achieve total sales of N123.9 billion, representing 45 per cent of its target for the month.
This was in spite of slight increases in the interest rates on the bonds offered by the DMO.
The auction results showed that the DMO raised the marginal rates for the 3-year, 10-year and 20-year bonds to 11.0 per cent from 10 per cent, 13.0 per cent from 12.5 per cent and 13.7 per cent from 13.2 per cent respectively in the June auction.
Investment analysts however noted that for the DMO to attract investors to future auctions it would have to offer higher rates given the inflation rate of 18.6 per cent and MPR at 14 per cent.
While noting that in spite of the impact of scarcity of funds and increasing appetite triggered by the CBN’s tight monetary policy, on future bond auctions, they expect the DMO to meet its funding target of N3.53 trillion to finance the projected deficit of N7.35 trillion in the FGN’s 2022 budget.
Speaking in this regard, analysts at FBNQuest Securities, associated company in the First Bank Group, said: “The total amount raised by the DMO this year amounts to N1.7 trillion. If we include sales based on non-competitive allotment, the gross amount rises to N1.96 trillion. This excludes smaller sums raised via other instruments including Sukuk and the FGN savings bond.
“Despite the DMO’s disappointing outing, the sum raised so far by the agency suggests that it is broadly on track to raise its total domestic funding target of N3.5 trillion (including the additional borrowings of N965 billion following revisions to the budget).
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“However, the tight liquidity conditions in the market may continue to negatively affect demand at auctions in the near term.
“There are tougher credit conditions on the international market following monetary policy tightening by most central banks globally. This may force the FGN to turn to the domestic market to source some of the N2.6 trillion in external borrowing highlighted in the 2022 budget.
“The last resort would be for the fiscal deficit to become unfunded, or in other words, funded by ways and means advances from the CBN.
“Given the tight liquidity conditions in the market, we see yields inching up by around 25-50bps across the curve over the coming weeks.”
Similarly, analysts at United Capital Plc, associated company in the First Bank Group, said: “In line with our expectations of an uptick in the yield environment in the sovereign bonds market, marginal rates across all the tenors climbed 90bps, 50bps, and 60bps to print at 11.00%, 13.00% and 13.75%, respectively. Investors opted toward a more relaxed approach in the auction, demanding higher yields, as the expectation of inflation, interest rates, and political risks all begin to crystalise. These follow persistent inflation, monetary policy normalisation globally and the increased perception of political risk as we approach the electioneering season.
“We expect a continued uptick in marginal rates at subsequent bond auctions, as we believe investors will remain standoffish. The DMO will need to reel in higher rates to attract fund managers’ interests.
“Also, the recent hawkish stance adopted by the CBN, hiking rates by 250bps in total (100bps at July’s MPC meeting), will drive investor’s appetite for increased rates.
“Notwithstanding, we maintain the FG’s apparent need to rely on the domestic debt market to fund its fiscal imbalance, as external debt market conditions remain unfavourable. These factors will further impetus for shifting pricing power away from the FGN/DMO and into the hands of private sector asset managers.”
Protect the poor from galloping inflation, World Bank advises Nigerian govt, others
… lowers Nigeria’s economic growth forecast
The World Bank has called on the Federal Government of Nigeria and other governments in the Sub-Saharan African region to urgently implement measures to restore macro-economic stability and protect the poor from the high inflation and current slow economic growth.
The World Bank has also lowered its economic growth forecast for Nigeria in 2023 to 3.2 per cent from 3.3 per cent due to the slowdown in global growth, the war in Ukraine and declining demand from China for commodities produced in Africa.
It projected that the Sub-Saharan African region would record a lower economic growth of 3.3 per cent in 2022 as against the 4.1 per cent recorded in 2021.
The forecasts were contained in the October edition of the World Bank’s Africa’s Pulse, a biannual analysis of the near-term regional macroeconomic outlook, and economic growth in Sub-Saharan Africa (SSA).
Highlighting the growth factors for Nigeria’s economy, the World Bank said, “The Nigerian economy is projected to slow in 2023, down to 3.2 per cent (from 3.3 per cent) and persist at this level the following year. Growth will be supported mainly by the rebound in private consumption prompted mostly by accommodative monetary policy as inflationary pressures subside.
“Private consumption expenditure is forecast to decrease this year and grow next year. This performance will likely continue in 2024. On the production side, growth in 2023 will be supported by industry (with the growth of 5.1 per cent) with the mega-refinery project.”
On its growth forecast for the Sub-Saharan African region, the World Bank said: “Economic growth in Sub-Saharan Africa (SSA) is set to decelerate from 4.1% in 2021 to 3.3% in 2022, a downward revision of 0.3 percentage points since April’s Pulse forecast, mainly as a result of a slowdown in global growth, including flagging demand from China for commodities produced in Africa.
On the factors undermining economic growth in SSA, the World Bank said, “The war in Ukraine is exacerbating already high inflation and weighing on economic activity by depressing both business investments and household consumption. As of July 2022, 29 of 33 countries in SSA with available information had inflation rates over 5% while 17 countries had double-digit inflation.
“Elevated food prices are causing hardships with severe consequences in one of the world’s most food-insecure regions. Hunger has sharply increased in SSA in recent years driven by economic shocks, violence and conflict, and extreme weather. More than one in five people in Africa suffer from hunger and an estimated 140 million people faced acute food insecurity in 2022, up from 120 million people in 2021, according to the Global Report on Food Crises 2022 Mid-Year Update.
“The interconnected crises come at a time when the fiscal space required to mount effective government responses is all but gone. In many countries, public savings have been depleted by earlier programs to counter the economic fallout of the COVID-19 pandemic, though resource-rich countries in some cases have benefited from high commodity prices and managed to improve their balance sheet.”
“Debt is projected to stay elevated at 58.6% of GDP in 2022 in SSA. African governments spent 16.5% of their revenues servicing external debt in 2021, up from less than 5% in 2010. Eight out of 38 IDA-eligible countries in the region are in debt distress, and 14 are at high risk of joining them. At the same time, high commercial borrowing costs make it difficult for countries to borrow on national and international markets while tightening global financial conditions are weakening currencies and increasing African countries’ external borrowing costs.”
Stressing the need for governments to improve the efficiency of existing resources and to optimize taxes in response to the above challenges, the World Bank added that, “In the agriculture and food sector, for example, governments have the opportunity to protect human capital and climate-proof food production by re-orienting their public spending away from poorly targeted subsidies toward nutrition-sensitive social protection programmes, irrigation works, and research and development are known to have high returns.”
FG sues Mark Zuckerberg’s Meta over adverts, demands N30bn
The Advertising Regulatory Council of Nigeria (ARCON) has said it filed a lawsuit at the Federal High Court, Abuja against Meta Platforms Incorporated (owners of Facebook, Instagram and WhatsApp) and its agent AT3 Resources Limited.
The country’s apex advertising governing agency revealed on Tuesday that the advertisements on Facebook, Instagram and WhatsApp in the Nigerian markets are not vetted and approved by the federal government.
ARCON then asserted that such continued unscrutinised adverts and other publications emanating from Mark Zuckerberg’s Meta-owned social media platforms are illegal, unlawful and a violation of the extant advertising Law in Nigeria, thus seeking N30 billion for punitive damages.
It revealed this in a statement titled “ARCON sues Meta platforms incorporated, seeks N30b in sanction and penalties.”
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The statement read: “The Advertising Regulatory Council of Nigeria (ARCON) has instituted a suit against Meta Platforms Incorporated (owners of Facebook, Instagram and WhatsApp platforms) and its agent AT3 Resources Limited at the Federal High Court, Abuja Judicial Division.
“ARCON is seeking declaration among others that the continued publication and exposure of various advertisements directed at the Nigerian market through Facebook and Instagram platforms by Meta Platforms Incorporated without ensuring same is vetted and approved before exposure is illegal, unlawful and a violation of the extant advertising Law in Nigeria.
“ARCON stated that Meta Platforms Incorporated’s continued exposure of unvetted adverts has also led to a loss of revenue to the Federal Government.
“ARCON is seeking N30b in sanction for the violation of the advertising laws and for loss of revenue as a result of Meta Incorporated’s continued exposure of unapproved adverts on its platforms.
“ARCON reiterate that it would not permit unethical and irresponsible advertising on the Nigeria’s advertising space.
“ARCON further stated that it’s not regulating the online media space but rather advertisement, advertising and marketing communications on the online platforms in line with its establishment Act.”
NNPC declares over 100% profit in one year, with N674bn for 2021
The Nigerian National Petroleum Company (NNPC) Limited recorded a profit after tax (PAT) of N674 billion for the year ended 2021.
This is more than 100 per cent profit over the N287bn declared in the previous year (2020).
The Group Chief Executive Officer, NNPC Limited, Mele Kyari, disclosed this at a briefing on Tuesday.
He said, “Today, I’m happy to announce that the Board of NNPC has approved 2021 audited financial statements & NNPC has progressed to a new performance level, from N287bn profit in 2020 to N674bn profit after tax in 2021, climbing higher by 134.8% YoY profit growth.”
The 2021 financial year made it the fourth consecutive year that the NNPC will be opening its book for public scrutiny.
In 2018, when the NNPC first made account statement public, it reported a loss of N803.9bn.
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