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Budget Deficit Financing Gains Transaction As DMO Raises #850bn

The financing of the 2017 federal government budget deficit may have little challenge as the Debt Management Office (DMO) have raised almost half of the amount required from the domestic market to finance.

President Muhammadu Buhari presented a budget of #7.298 trillion while the National Assembly passed #7.44 trillion. The budget deficit is put at #2.3 trillion. Although the deficit is expected to be financed through domestic and external borrowing, there have been apprehensions among stakeholders over the ability of the government to successfully raise the funds.

However, analysts at FBN Quest said the DMO had so far raised #850 billion, saying the agency is on its way to the #1.25 trillion domestic financing of the budget deficit.

DMO last Wednesday raised #99 billion in its monthly FGN Bond offering.

According to FBN Quest, while the #99 billion was lower than the #140 billion offered, DMO was able to set marginal rates for all three bonds below the level of the previous month.

"It was operating from a position of strength due to its successful front-loading of issuance. It has now raised #850 billion (gross) in the half-year and is well on its way to the #1.25 trillion projection for the domestic financing of the 2017 budget. It has other, smaller strings to its bow such as the FGN savings bonds," FBN Quest explained.

The analysts said the DMO may justifiably feel that it has done its bit towards budget deficit financing with these auctions as well as the sales of the sovereign Eurobonds and the diaspora issue.

"It would feel more comfortable with tangible evidence that the multilateral contribution from the World Bank and the African Development Bank is forthcoming. We note that these partners were to have helped finance the 2016 depicit. The DMO has additional flexibility in its issuance in the months ahead since it has announced it is to launch Nigeria's first sovereign sukuk (Islamic bond) in naira to raise #100 billion," they said.

At the beginning of the year, DMO had planned to issue between #340 billion to #430 billion of local-currency bonds during the first quarter of this year.

It explained that it would auction #110 billion to #140 billion worth of bonds maturity in 2021 and #85 billion to #105 billion in debt maturing in 2026. It will also sell #45 billion to #55 billion in bonds maturity in 2027 and #100 billion to #130 billion of the 2036 debt.

Explaining the need for the government to borrow, a former Managing Director of Unity Bank PLC, Rislanudeen Muhammad, had said in a period of recession, the plausible way to pull ourselves out of it is by way of reflating the economy through massive investment in infrastructure, income and job creating sectors like agriculture, mining and manufacturing, public private partnership etc with multiplier implication of increasing employment and jump starting the micro economy.

"To that extent, the budget was rightly structured to deal with that challenge of stagflation and recession. However, we need to be careful in ensuring we borrow for capital expenditure only, on projects that will generate growth and support repayment of the loan. We should not borrow for consumption," he said.
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