Pressured by widening fiscal deficit worsened by weak revenue inflow, the Federal Government took advantage of investors’ appetite for higher interest rate to increase domestic borrowing in the first half of the year (H1’21) by 3.9 per cent, year-on-year, to N3.3 trillion from N3.18 trillion in the corresponding period of 2020 (H1 ‘2020).
The Federal Government (FG) has a N5.6 trillion fiscal deficit in the approved Budget 2021 and N859.4 billion in the recently approved Supplementary Budget 2021, hence a combined fiscal deficit of N6.5 trillion for 2021. This represents 25 per cent increase when compared with the projected fiscal deficit of N5.2 trillion in the revised Budget 2020.
Among other things the FG plans to borrow N3.1 trillion from local investors to fund the N6.5 trillion fiscal deficit of 2021, while the balance will be funded through external borrowing.
To attract lending from local investors and thus achieve its N3.1 trillion domestic borrowing target for the year, the Federal Government (FG) through the Central Bank of Nigeria (CBN) and the Debt Management Office (DMO) increased interest rates on the FGN Bonds and Nigeria Treasury Bills (NTB) and the FGN Savings Bonds.
Consequently, the CBN increased the stop rate on 364-Days treasury bills by 7,940 basis points (bpts) to 9.15 per cent in June 2021 from 1.21 per cent in December 2020. The apex bank also increased the stop rate on the 182-Days bills and 91-Days bills by 2,500 and 2,000 bps respectively to 3.5 per cent and 2.5 per cent in June from 1.0 and 0.5 per cent in December 2020.
On its part, the DMO increased the stop rates on the 15-Years and 25-Years FGN Bonds by 6,600 and 6,700 bpts respectively to 13.5 per cent and 13.7 per cent in June 2021 from 6.9 per cent and 7.0 per cent in December 2020.