FGN to Convert CBN Loans to Tradable Securities as Debt Soars


Friday, January 15, 2021  / 12:44 PM / by FDC Ltd / Header Image Credit: MIES Group

Proshare Nigeria Pvt. Ltd.

The Federal government has revealed plans to convert its loans from the CBN in 2020 (over N11trn) into formal borrowings by designing "special instruments" that could be repackaged and sold as bonds. The FG had partly financed the N6.1trn deficit for 2020 by "Ways and Means" and is also likely to do so again in 2021.


The impact of this is will be a huge injection of over N11trn into the fixed income market in 2021 which would trigger a rise in fixed income yields. This supports the forecast of a shift to a higher interest rate environment in 2021. This could also have negative consequences for liquidity in the equities markets which has been one of the biggest beneficiaries of the lack of fixed income securities.


The Federal government, will also increase its total borrowings, now at $73.57bn, but will not take any new facilities from the International Monetary Fund (IMF). The Federal Minister of Finance disclosed this.


This is after it obtained nonconditional multilateral financing from the IMF ($3.4bn) in 2020. A higher fiscal deficit of N5.7trn is projected in the 2021 budget - 14.46% higher than the deficit of N6.91trn in 2020. The government is also concluding negotiations with the World Bank on the $1.5bn loan, which will provide support in bridging the fiscal gap. The government's decision to not give in to floating the naira is also limiting its ability to access significant funding from concessionary loans from the World Bank.


However, it is now emphasizing on domestic borrowing above external debt and has stated that there would be no Eurobond at current rates of interest. In 2020, Vice President Yemi Osinbajo had hinted at the Federal government's intentions to extend what is now a two-year hiatus from the Eurobond market. This is in spite of low interest rates globally, as central banks in advanced economies have reduced benchmark interest rates to nearzero to stimulate their economies in the wake of the negative effects of the COVID-19 pandemic.


The Federal government's decision will ease the pressure on mounting external debt and exchange rate volatility. Domestic debt issuances will increase as a result, crowding out private sector borrowing. With inflation skyrocketing, the switch to a higher interest rate environment is now almost inevitable in the near term and this will exacerbate the governments financing pressures as the cost of servicing domestic debt would rise.

Proshare Nigeria Pvt. Ltd.

Related News 

  1. 62.18% of Nigeria's Total Public Debt as of Q3 2020 Was Domestic - NBS
  2. FGN's Domestic Debt Service on a Plateau, Totalled N604bn in Q3 2020
  3. FGN's Domestic Debt Service on a Plateau, Totalled N604bn in Q3 2020
  4. A Small Rise in the FGN's Domestic Debt in Q3 2020
  5. Nigeria's Public Debt Stock as of September 30, 2020 Stood at N32.22trn
  6. External Debt Service Under Control 
  7. New Issuance, New Debt Service 
  8. External Debt Almost Two-thirds Concessionary 
  9. Nigeria's Total Public Debt Stood At N31.01trn in Q2 2020 - NBS 
  10. Nigeria's Public Debt Stock Stood At N31.01trn As of June 2020 
  11. External Debt Stock Flat in Q1 2020 
  12. Q1 2020: Debt Service Settled on a Plateau 
  13. Nigeria's Total Public Debt Stood At N28.63trn in Q1 2020 - NBS 
  14. Nigeria's Total Public Debt Stood At N27.40trn in Q4 2019 - NBS 
  15. Nigeria's Rising Debt Burden and How to Boost Revenue 
  16. Nigeria's Total Public Debt Stood At N26.14trn in Q3 2019 - NBS 
  17. Nigeria's Total Public Debt Stood At N25.70trn in Q2 2019 - NBS 
  18. Nigeria's Total Public Debt Stood At N24.97trn in Q1 2019 - NBS 
  19. DMO Releases Q1 2019 Public Debt Data - Marginal Increase of 2.3% in Total Public Debt Recorded 
  20. DMO Releases Public Debt Data for December 2018 
  21. Nigeria's Total Public Debt Stock Stood At $73.21bn or N22.43trn in Q3 2018 
  22. DMO Releases Public Debt Data for June 2018; FGN Domestic Debt Declines 
  23. Public Debt Vulnerable to Exchange Rate Movements 
  24. DMO Publishes Q1 2018 Debt Data; Total Public Debt Stood At N22.71trn or US$74.28bn 
  25. Total Public Debt as at December 31, 2017 Represents 18.20% of Nigeria's GDP for 2017 - DMO 
  26. Nigerian Public Debt - A Comparative Analysis

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.
Related News