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Budget deficit: FG may meet 3% of GDP ceiling

By on June 19, 2014

Experts in the nation’s financial service sector have predicted that Nigeria’s deficit for the year would meet the ceiling of three per cent of gross domestic products (GDP) set in the Fiscal Responsibility Act (2007).

The deficit in the first quarter of the year amounted to N430 billion. However, experts have stated that while this represents a pro rata overshoot, the first and fourth quarters tend to be the weakest in fiscal performance.

In a report made available to THISDAY, experts at FBN Capital stressed that Nigeria will not witness a fiscal implosion ahead of the 2015 elections as widely speculated.

According to the experts: “In line with best practice, the Debt Management Office (DMO) has front-loaded its issuance and raised N465 billion (gross) in the first half of 2014. In recent years, Nigeria has not had an approved budget for most of the first half.”

The approved 2014 budget projects a FGN deficit of N912 billion, of which net domestic borrowing is the largest element. This led the Debt Management Office to continue its aggressive bond issuance in the domestic capital market.

In its latest monthly auction of FGN bonds held last Wednesday, the DMO raised N80 billion. The target had been N70 billion, divided equally between the two issues reoffered, but the strength of the total bid of N205 billion enabled the office to collect N50 billion from the sale of the 10-year paper (Mar ‘24s).

This, the experts said, was another successful auction for the FGN, which is able to tap into consistently strong domestic institutional demand, led by the pension fund administrators (PFAs).

The DMO auctions, they added, are underpinned by the paucity of investment alternatives for the PFAs, and only rarely prove challenging when distributions by the FAAC are delayed.

Meanwhile, analysis of the performance of the bond market revealed that bond Yields fell from 12.00 per cent the previous month to 11.36 per cent for the Aug ‘16s and from 12.55 per cent to 12.25 per cent for the Mar ‘24s.

Bond yields had widened by about 200bps in June 2013 on remarks by the then chairman of the US Federal Reserve, Ben Bernanke, on the likely start of the reversal of quantitative easing (or tapering).

 

 

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One Comment

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