The investigation by THISDAY reveals that the federal government’s exposure to savings bonds grew to N28.62 trillion between 2020 and 2022, as the government continued to borrow from local investors to bridge the budget deficit. Analysis of bond auction numbers during this period showed a significant rise in investment in the FGN Savings Bond in 2022.
According to the Debt Management Office (DMO), the FGN Savings Bond was introduced in 2017 to deepen the national savings culture and diversify funding sources for the government. The bond was launched for retail investors and guaranteed interest payment and repayment of the principal. In 2022, the highest patronage of the FGN Savings Bond was recorded since its launch, driven by a higher interest rate compared to Treasury bills (TBs) amidst a 21.34% inflation rate.
The FGN Savings Bonds are issued monthly in tenors of 2 and 3 years.
A breakdown of the data revealed a 97.6% Year-on-Year (YoY) increase in local investors’ investment in the FGN Savings Bonds to N16.59 trillion in 2022 from N8.4 trillion in the corresponding period of 2021. The Debt Management Office (DMO) raised a sum of N3.67 trillion in 2020, but the amount was reduced due to the COVID-19 pandemic as the FGN savings was offered only 8 times.
The coupon rate on 2-year and 3-year FGN Savings Bonds increased to 12.255% and 13.255% in December 2022, surpassing the 7.322% and 8.322% interest rates offered in 2021. In comparison, the coupon rate on 2-year and 3-year FGN Savings Bonds closed at 1.320% and 1.820% in December 2020, down from the 7.144% and 8.144% offered by the DMO in January 2020.
THISDAY’s analysis also showed a 96.3% YoY increase in investment in the 2-year FGN Saving Bond to N5.04 trillion in 2022 from N2.57 trillion in 2021.
Investment in the 3-year FGN Savings Bond also saw a 98.17% YoY increase, reaching N11.54 trillion in 2022 from N5.83 trillion in 2021.
The strong demand for FGN bonds shows that Pension Funds Administrators (PFAs) and Nigerian investors prefer investment instruments with low volatility that guarantee capital returns, even with a lower return on investment.
In response to THISDAY’s inquiry, the Head of Equity Research at FBNQuest, Tunde Abidoye, stated that federal government bonds are oversubscribed due to the current surplus liquidity in the financial system. He emphasized that institutional investors are constantly seeking new avenues to invest funds from maturing securities, coupons and dividend receipts and newly generated assets under management.
Nigerian pension funds tend to invest in government debt due to a limited supply of high-quality investment options and a lack of market depth in equities. These funds also prioritize portfolio safety and follow strict regulations set by industry regulators. Despite being perceived as risk-free, the federal government’s increased borrowing has raised concerns about the rising public debt, which reached N44.06 trillion ($101.91 billion) in Q3 2022, up from N42.84 trillion ($103.31 billion) in Q2 2022.
According to an economist and CEO of the Centre for the Promotion of Private Enterprise, Dr. Muda Yusuf, the government’s announcement of borrowing more in 2022 was due to its N6.3 trillion deficit and additional N4 trillion subsidiary budget. He explained that borrowing domestically is a more viable option given the current economic challenges and weak fiscal policies, as well as the government’s financial difficulties. Borrowing domestically, instead of internationally, also makes sense given the foreign exchange volatility.
The high subscription to FBN Savings Bond was attributed to its low-risk factor by a noted expert. He stated that globally, sovereign bonds have the lowest risk and serve as an investment outlet for investors. The Debt Management Office (DMO) announced that the 2-year bond due February 15, 2025, has a coupon rate of 10.04%, while the 3-year bond maturing on February 15, 2026, has a coupon rate of 11.04%. Interest on the bonds will be paid to subscribers quarterly. The bond can be purchased from designated stockbrokers. The offer will be open from February 6th to 10th with a settlement date of February 15th and coupon payment dates on May 15th, August 15th, November 15th, and February 15th.
According to the guidelines, retail investors need a minimum of N5,000 to invest in the FGN Savings Bond, with subsequent investments in multiples of N1,000. The maximum investment for a single retail investor is N50 million. The bonds have a tenor of 2 and 3 years and the interest rates are set by the DMO.