The Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, announced that the Federal Government’s revenue rose by N9.1 trillion in the first half of the year 2024. In a report presented by Dr. Armstrong Takang at the 17th Annual Banking and Finance Conference, the impact of this growth appeared to be enhanced by revenue collection strategies and technological advancements.
The Federal Government of Nigeria introduced the Domestic Dollar Bond on the 19th of August, which closed last week with the DMO raising $900 million, well above the originally offered amount of $500millìon.
At the NAFEM Window, the Naira traded against the Dollar at a high of $/N1,660.00 on Monday, closing the day at N1,580.46. In the same vein, it was observed that the currency pair traded as low as N1,499 on Tuesday, closing the day at N1,637.59. Although many analysts are of the opinion that the CBN seems comfortable pegging the Naira around $/N1,600.00, we expect some revaluation further to the successful Dollar bond issuance and concurrent accretion to our external reserves
Observations from the recent NTBs (Nigeria Treasury Bill) auction conducted last week provide crucial insights into how the fixed-income markets might react to the forthcoming bond auction. This NTB auction depicted a notable trend of declining rates, a pattern consistent with the two previous auctions. Such a reduction in rates could be justified as either a shift in investor sentiment or a gradual shift in the monetary policy disposition.
Furthermore, the DMO allotted precisely the amount offered despite receiving a significantly high volume of subscriptions. The total amount offered and allotted across all tenors was over N161 billion. Although liquidity was short throughout the week, one could infer that this decision indicates the DMO’s growing confidence in raising funds needed through the Eurobonds.
The 91-day tenor closed at 16.63% (a decline of 37 basis points), the 182-day closed at 17.00% (a decline of 50 basis points), and the 364-day closed at 18.59% (a decline of 35 basis points) from the previous auction.
AUCTION DATE | 11-09-2024 | 11-09-2024 | 11-09-2024 |
ALLOTMENT DATE | 12-09-2024 | 12-09-2024 | 12-09-2024 |
MATURITY DATE | 12-12-2024 | 13-03-2025 | 11-09-2025 |
TENOR | 91-DAY | 182-DAY | 364-DAY |
OFFER (₦) | 6,780,629,000 | 4,918,383,000 | 150,180,915,000 |
SUBSCRIPTION (₦) | 17,801,659,000 | 6,158,994,000 | 539,208,540,000 |
ALLOTMENT (₦) | 10,841,303,000 | 2,518,112,000 | 148,520,512,000 |
STOP RATES (%) | 16.6300 | 17.0000 | 18.5900 |
PREVIOUS STOP RATES (%) | 17.0000 | 17.5000 | 18.9400 |
In view of the upcoming bond auction and where the trend of declining rates continues, it could signal a broader easing in fixed-income yields, potentially influencing investor behaviour. Investors might anticipate lower yields on bonds, affecting their bidding strategies and the overall demand for said bonds. Thus, the outcomes of the NTBs auction could directly shape expectations and strategies for the forthcoming bonds auction, influencing both supply and demand dynamics in the Nigerian fixed-income markets.
Upon the announcement of the result of the local Dollar Bonds issuance, the auction saw a substantial oversubscription of 180%, with demand reaching $900 million against an initial offer of $500 million. Market participants believe that this has significant implications for Nigeria’s economy and the fixed-income markets. In addition, it is common knowledge that the high level of oversubscription reflects strong investor confidence, primarily sponsored by the attractive yield of 9.75% on the five-year bond.
Such robust demand indicates that investors are optimistic about Nigeria’s economic prospects and are willing to invest substantial amounts in the country’s Dollar-denominated bonds. This is particularly noteworthy as it suggests a favourable view of Nigeria’s fiscal and economic stability, which can enhance the country’s ability to attract further investment. However, this increased demand is an opportunity for the Government to showcase its accountability and transparency in utilising the proceeds from the bonds effectively.
In the week under review, and with the revenue growth reported, the Federal Government’s revenue target for the year 2024 was set at N18.32 trillion, with expenditure projected at N27.5 trillion (according to sources from PwC). The N9.1 trillion raised in the first half of the year puts the government on track to meet its annual revenue target, aligning well with the fiscal projections. Achieving the revenue target is crucial for managing the government’s expenditure plans and reducing reliance on borrowing, which would influence the financial markets by impacting bond yields and overall market stability.
Even with the challenge of fuel scarcity in the nation, oil revenue was said to have increased from 11% to 30% of the gross revenue. Simultaneously, non-oil revenues have exceeded budget expectations, highlighting the success of diversification efforts and reducing the economy’s vulnerability to oil price fluctuations.
The increased revenue supports the government’s ability to fund critical projects and maintain fiscal stability, which will promote a viable environment for investments. Investors are likely to view the government’s financial health and revenue performance positively, potentially leading to more stable or even lower yields on government bonds.
The bonds auction for September 2024 has been postponed by a week and is set to be held on the 23rd of September, the same period as the 297th Monetary Policy Committee (MPC) meeting. Nigeria’s inflation also reportedly slowed in August 2024 to 32.15% from 33.40% in July, and this development in the views of many is particularly positive.
The reported increase in the Federal Government revenue, which reached N9.1 trillion in the first half of 2024, reflects a robust economic environment and improved fiscal management.
In the context of these developments, the MPC’s upcoming meeting will likely focus on evaluating the implications of these fiscal improvements for monetary policy. The substantial revenue boost indicates that the Government’s fiscal position is strengthening, potentially reducing the need for aggressive fiscal borrowing. This fiscal stability could influence the MPC’s decisions regarding interest rates and other monetary policy tools.
The MPC is expected to be cautious in balancing the reported fiscal growth with the likelihood of the exchange rate and inflation remaining key issues.
