Fiscal Deficit: FG Raised 67% of External Borrowing Plan – DMO
The Debt Management Office has told investors that the federal government has raised 67% of its external borrowing plan to finance its fiscal deficit for 2020.
Patience Oniha, Director General of the DMO said this at an investor call recently that the government has made progress on funding its large fiscal deficit for the year.
The nation’s fiscal deficit for the year is $5.5 billion, out of this a total sum of $3.7 billion has been raised.
Already, the government has raised US$3.7 billion or 67% of its US$5.5 billion external borrowing plan, and hoping to get approval for US$1.5 billion from the World Bank in August.
Also, US$750 million of the US$1 billion targeted as project-tied loan for the power sector was approved by the World Bank last week.
On the domestic front, the DMO indicated that the government has raised over 60% of its planned net borrowing of ₦2.2 trillion.
Chapel Hill Denham said this is above its estimate of 45%.
“This implies that DMO’s supply will be subdued in the second half of 2020, particularly as there are no major bond maturities to refinance”, analysts said.
Chapel Hill Denham said open market operations (OMO) maturities are elevated between September and December.
This provides ample liquidity for the DMO to successfully execute its domestic borrowing plan, without putting borrowing cost at risk, it said.
However, analysts envisage that, if the CBN eventually decides to relax its de-facto USD/NGN peg, there is a possibility that the Bank will increase supply of OMO bills to encourage portfolio inflows and finance current account deficit.
Despite tight system liquidity, the bullish run in the fixed income market gained momentum last week as investors who missed out of the bond auction in the previous week continued to bid strongly for available maturities.
Consequently, bond yields compressed by 61 basis points (bps) week on week (wow) across the benchmark curve to 8.36%.
The front end of the curve barely changed, with the benchmark OMO curve rising by 5 bps to 4.67%, while NTBs were flat at 2.36%.
However, as a result of thin liquidity, following the cash reserve ratio debit the previous week, interbank funding rates were elevated within double digits.
Primary market activity was very thin as there were no government issuances.
Chapel Hill Denham expects activity to resume this week with a rollover of ₦88.86 billion Nigerian Treasury Bills auction holding on Wednesday.
The DMO will be offering ₦10 billion of 91-day, ₦20 billion of 182-day, and ₦58.86 billion of 364-day papers.
The previous auction cleared at 1.8%, 2.04% and 3.746% respectively.
Analysts said liquidity pressures are expected to persist at the start of the week, but should ease on Thursday due to a scheduled OMO maturity of ₦157.23 billion.
“A retail FX auction is expected on Friday, and we do not rule out the possibility of a CRR debit before the auction”, Chapel Hill Denham said.