As President Bola Tinubu prepares to present to the National Assembly tomorrow, the 2025 national budget largely saddled with funding by borrowings, the Federal Government (FG) is set to overshoot its domestic borrowing target for 2024 by N4 trillion, about 67 per cent above the budgeted amount.
These are coming despite the widespread concerns over the continued rise in the nation's debt stock.
Details of the domestic borrowing activities of the government in the 11 months to November 2024 is already showing borrowing in excess of N2.93 trillion or 49 per cent above the target as of November.
Financial Vanguard findings showed that FG had borrowed N8.93 trillion from domestic investors in the eleven months from January to November, 11M'24, as against the N6 trillion planned for the whole year.
With this trend and other borrowing activities currently being executed, the FG may end up borrowing N10 trillion in 2024, 67 per cent above the target for the year.
Meanwhile, these are coming against the backdrop of FG's plan to finance the 2025 budget deficit with domestic and external borrowings amounting to N9.22 trillion, 18 % higher than the N7.808 trillion for 2024.
The 2025 deficit budget according to the Federal Ministry of Budget and Economic Planning report would be financed "by new foreign and domestic borrowings of N9.22 trillion, N312.33 billion from Privatization Proceeds, and N3.55 trillion draw-downs on existing multilateral/bilateral project-tied loans. The deficit will largely be financed by domestic borrowings, considering the narrow window for external financing."
Details of 11M'24 FG Securities
Breakdown of data from the Debt Management office, DMO, and the Central Bank of Nigeria, CBN, showed that in the third quarter, Q3,24 the Federal Government borrowed N2.134 trillion from domestic investors through the Nigeria Treasury Bills, NTBs, FGN Bonds, FGN Savings Bonds.
Borrowings through the NTBs auctions conducted by the CBN stood at N1.181 trillion, while FGN Bonds FGN Savings accounted for N939.246 billion and N14 billion respectively.
Further analysis showed that in October and November this year the Federal Government borrowed N774.953 billion through NTB; FGN Savings Bonds of N635.752 billion and FGN Savings Bond amounting to N7.152 billion.
Domestic Borrowing in H1'24
Meanwhile, according to the recent data released by the DMO, the Federal Government's domestic debt stock for the first half of the year, HI'24, stood at N66.957 trillion, representing 38.6% growth from N48.314 trillion in HI'23.
CBN borrowings through NTBs rose to N11.8 trillion in HI'24 from N4.7 trillion in H1'23 and accounted for 17.64 % of the total FG's borrowing.
FG's borrowing through the monthly FGN Bond auctions, which constituted 78.13 % of total FG borrowing during the period, rose to N52.315 trillion in the HI'24 from N41.722 trillion in HI'23.
FG's borrowing through Sukuk Bonds, which accounted for 1.6% of total FG domestic borrowing during the period, rose to N1.092 trillion in HI'24 from N742 billion in H1'23.
FG's domestic borrowing through FGN Savings Bonds accounted for 0.08% of total FG's borrowing during the period, also spiked, rising to N55.196 billion in H1'24 from N30.704 trillion in H1'23.
Analysts' insight
Meanwhile, analysts and economy experts have stated that among other things the 49 per cent excess domestic borrowing by the FG in 11M'24 was also driven by investors' response to the high interest rate regime during the period prompted by 875 basis points hike in the Monetary Policy Rate, MPR, by the CBN.
From 18.75 per cent in February, the CBN steadily raised the MPR to 27.5 per cent in November this year.
As a result, the interest rate on 364-Days NTBs rose to 22.93 per cent in November from 12 per cent at the beginning of the year, representing 11.91 percentage points increase from 4.44% in H1'23.
In the same vein, the average interest rate on FGN Savings Bond for 2 year tenor rose to 17.483% December 2024 from 12.287% in December 2023.
Reviewing the fiscal position in 2024, David Adonri, Analyst/ Executive Vice Chairman at Highcap Securities Limited, said: "To different elements in the economy, rising debt and rising yield on debt means different things. While the investor in debt is happy and smiling to his bank, corporate debt issuers are groaning because of the escalated cost of borrowing and the crowding-out effect of public borrowing.
"Above all, rising public debt signals an expansionary fiscal policy which is inimical to the effectiveness of tightened monetary policy.
"FGN is already in a debt trap, requiring new debt to service existing obligations. This leaves very limited financial resources for economic development. If the reckless piling of debt by FGN continues, a sovereign default might become imminent.
"Notwithstanding the influence of the high interest rate regime, the sharp rise in FG's borrowing from domestic investors is inimical to the private sector as it makes it more costly for businesses to borrow.
"Also, the higher lending rates has led to inflationary pressures as the corporates have to increase prices to cover for the higher borrowing rates.
"With respect to monetary policy, whilst the Central Bank continues on its hawkish trend, we expect pressure from the government on the Central Bank as its debt service costs rise.
"The government cannot afford to borrow at these levels for an extended period of time. Government spending has also led to more pressure on the currency as it means more Naira available to chase the dollar."
Continuing, he stated: "With respect to fiscal policy, we are yet to see the borrowing by the government to have an impact on fiscal policy. Yes, we have the Coastal roads being built, but we would like to see more with regards to policies to help increase production output in the economy.
"Also, we expect to see a significant increase in debt servicing costs, factoring in the higher rates and increase in domestic borrowing."
Also speaking to Financial Vanguard on the situation, Victor Chiazor, Head of Research and Investment at Fidelity Securities Limited, FSL Securities Limited, said: "The government borrowing has fueled inflationary pressures.
"In addition there's an indirect effect on exchange rates. Also, there's the crowding out effect for private sector lending. As it is, not many businesses can afford to borrow at the elevated interest rate.
"Finally, the monetary policy response to all this may be to continue to raise interest rates in a bid to tame the spiraling inflation."
Commenting as well, Dr Muda Yusuf, CEO of Centre for the Promotion of Private Enterprise (CPPE), said: "There is a general need to moderate borrowing so that it doesn't overheat the economy.
"With respect to the implication for inflation, the deficit if financed properly may not be inflationary.
"Inflationary component of deficit financing often arises when CBN prints money to finance the deficit. That is when you have serious issues with inflation, because the money is now what you call high-powered money.
"But if it's funded using bonds, treasury bills and other firms of borrowing, either from the public or from within the financial system, it is less inflationary.
"If the debt level continues to increase, of course it has a crowding out effect on the private sector. That means more of the credit in the economy will be going to the government as against the private sector, which is not a particularly good thing.
"So we need to worry about a trend of increasing domestic debt because of the risk of crowding out the private sector in the credit market.
"For fiscal policy, it's a fiscal policy instrument. Borrowing is a fiscal policy issue; it's used to fill the gap. Again, what is important is to maintain a sustainable ratio as far as borrowing is concerned, ratio of debt service to revenue, ratio of debt to GDP."
In his own comment, Olatunde Amolegbe, former President, Chartered Institute of Stockbrokers, CIS said: "For me, borrowing is a natural consequence of public expenditure if a country intends to grow. The question however is about what the debt is used for.
"I have always had reservations with borrowing to meet recurrent expenditure which is why I am more inclined towards infrastructure or project-tied debt that one is sure will go towards boosting economic growth and development.
"Of course the borrowing level and borrowing cost are high and this has negative implications for our finances as a country however in as much as the debt -GDP and debt-revenue continue to remain stable or even decline then debt sustainability should not be a problem.
"I suppose the increase in the volume of FGN's borrowing we've seen month-on-month is driven by the attractive interest rate that they presently offer to investors. It means investors can invest as low as N10,000 and get interest rate of about 18% which they can't get anywhere else. "This can actually be seen through the prism of wealth distribution or empowerment.
"It is therefore not a problem per se but how the fund generated is put to use to enhance production. The private sector wants to see infrastructure that would help them reduce cost of production".
Reacting as well,Tajudeen Olayinka, Investment Banker & Stockbroker stated: "I think the critical challenge there is the sustainability of debt as measured by (i) Debt to GDP Ratio, (ii) Debt to Revenue Ratio, (iii) Debt to Export Ratio.
"The more sustainable a country's debt is, the less burdensome it becomes to the economy. Accordingly, Nigeria's economy must become more productive in the immediate to near term for her to sustain the current level of debt stock. "This should be the focus of the current administration, even though it inherited huge debt service to revenue ratio that had become unsustainable from the administration of President Muhammadu Buhari.
"A huge U.S. dollar denominated debt could be more threatening than a huge Naira debt.
"Government should therefore manage the country's debt within the framework of debt sustainability.
"The growth in the stock of savings bond between 2023 and 2024 cannot be said to be life threatening. That segment of government securities market is known to be underperforming".
The federal government had in the 2024 budget estimated N27.50 trillion total expenditure and N18.32 trillion revenue, leaving the FG with a N9.05 trillion fiscal deficit.
According to the FG, the fiscal deficit is expected to be financed by a combination of domestic borrowings (N6.04 trillion), foreign borrowings (N1.77 trillion), multilateral/bilateral loan drawdowns (N941.19 billion), and privatisation proceeds amounting to N298.49 billion.
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