Nigeria: Analysts Forecast Increased Govt Borrowing As CBN's Primary Market Auction Rises By 162%

4 January 2022

Analysts have predicted that the federal government would sustain borrowing in 2022 as data obtained from the Central Bank of Nigeria (CBN) showed primary market auction rose significantly by 162 per cent in 2021 compared to the previous year.

With the federal government's increasing borrowing to finance its budget deficit, domestic borrowing was pegged at N6.7 trillion in 2021, as against N2.6 trillion in 2020.

The N4.28 trillion 2021 budget of federal government had huge debt components and this saw the apex bank to support with monthly primary market auctions.

Checks revealed that the CBN conducted primary market auctions three times every month in 2021, expect for May and September when primary market auctions were conducted four times.

Data revealed that the CBN repaid N3.68 trillion when the instrument matured in 2021, an increase of 65.2 per cent compared to N2.23 trillion repayment in 2020.

Demand for treasury bills surged in 2021 as yield-hungry investors scampered away from stock market into risk-free government securities.

Commenting on the development, Managing Director of Kairos Capital, Mr. Sam Chidoka said the trend would continue and cautioned that it was an unsustainable path.

He said: "Our borrowing in likely to continue in the same traction for the simple reason that we have a budget for 2022 that is a deficit budget.

"We have a budget of about N17 trillion and N10 trillion is supposed to come from identified revenue heads. So, you probably have N6 trillion to N7 trillion budget deficits that has to be funded by borrowing both local and foreign.

"So, we are likely to see the same traction as we saw last year. But the question is whether our payment sources commensurate with what we are borrowing? The question is whether our debt is sustainable or less thereof and I think that is becoming less sustainable and we have to find a way of either cutting government expenditure or increasing our revenue base in such a way that we can fund some of the things we want to do especially on the capital side.

Speaking further, Chidoka added: "Or borrowing exclusively for capital part of the budget and then using those to capitalise revenue, but I see that we are borrowing for debt service, recurrent expenditure and I don't think that it is sustainable. So, I think we are going to see the same high level of borrowing in 2022."

Also, Head Financial Institutions' Ratings Agusto & Co, Mr. Ayokunle Olubunmi, said the trend would continue and may be more exaggerated because of plans towards the upcoming general elections.

He said: "It is not far-fetched from what we are seeing as we have seen increased government borrowing basically because of the budget deficit that we've had.

"Government is spending more than they are earning and year-in year-out in the last four years, you see that the projected revenue is way higher than the actual as they have been doing well in terms of generating revenue.

"So whenever your expenditure is more than your income, definitely you actually will see that there would be borrowing. And unfortunately, we are still going to continue on the same path. The trend is going to continue till 2023 because we have elections in 2023 and the major campaign for election would be done in 2022 and whether we like it or yes, the expenditure and campaign funding might still come from projects and more."

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