Local Capital Market Can Fund N6.25trn Deficit In 2022 Budget, Says Experts
Funding a huge budget deficit of N6.25 trillion through the local capital market will put Nigeria in a better position to repay its debt at a time of hard currency crisis, analysts have said.
Besides, the Federal Government of Nigeria can also finance its budget deficit from the capital market by releasing its investment holdings in various privatised businesses across the country to the market, especially its stake in Electricity Generation and Distribution Companies (Gencos & Discos).
The financial analysts who spoke to InsideBusinessNG on this subject said the comparative advantage of financing this budget deficit through the local debt market outweighs the disadvantage, insisting that it is the best option before the government rather than raising Eurobonds for that purpose.
The proposed 2022 budget of N16.39trillion has an aggregate revenue of N10.13trillion, with N3.16trillion or 34.9 per cent expected to come from oil earnings. The balance of N6.97trillion, representing 65.1 per cent, is expected to come from non-oil sources.
The Muhammadu Buhari led APC government has made provision for a deficit of N6.25trillion which is equivalent to 3.39 per cent of the country’s gross domestic product (GDP), slightly higher than the 3 per cent threshold indicated by the Fiscal Responsibility Act of 2007.
The government plans to fund this huge deficit by fresh borrowing to the tune of N5trillion from both domestic and foreign debt markets.
In view of the persisting scarcity of dollars which is exerting pressure on the Naira for further devaluation, financial market analysts are urging the government to explore to the fullest, opportunities inherent in the local capital market for raising the needed funds.
The Managing Director, ATP Securities and Funds Limited, Garba Kurfi, advised the government to release some of their holdings to the capital market to be traded on the Exchange. And through that means, the government can raise the needed funds to finance its budget deficit.
“Government should release its holdings in Discos and Gencos. It should also relinquish NNPC which it has not been able to run efficiently. Government has no business being in business,” says Kurfi.
He continues: “In all the Discos, the Federal and State Government has 40 per cent stake in them. Federal Government also has about a 25 per cent stake in Gencos. If the government releases to the capital market its stakeholding in these entities, it will conveniently finance its budget deficit.
“The businesses, the market and the people generally will be better for it. Let government divest its holdings in businesses. Government should have no business being in business. Business is for the private sector, and not for government,” said the Lagos based senior dealing member of The Nigerian Exchange.
In a similar vein, the Chief Executive Officer, Highcap Securities Limited, David Adonri, urged the government to maximize the opportunities in the Nigerian capital market rather than going abroad to raise Eurobonds, stressing that going abroad for funds raising to finance its huge budget deficit would amount to exporting opportunities to overseas economies and creating jobs for foreigners at the expense of Nigerians.
In addition to regular fixed income instruments, the Lagos based financial analyst told the Federal Government to come up with Investment Trust Fund specially designed for financing infrastructure development.
The Federal Government is well known to issue such fixed income instruments as FGN Bonds, Sukuk Bond, and FGN Savings Bond. But the financial analyst urged the government to add Investment Trust Fund to its debt paper classes.
In urging Government to limit its debt issuances to the local market, Adonri also argues that while it can exercise control over its local debt, it doesn’t have similar sovereign power over external debts.
He added that in borrowing from abroad, Government is expected to earn enough hard currency to be able to pay back those dollar-denominated external debts.
“Regrettably, the government is currently having a hard currency crisis. In the event that it goes borrowing from abroad if it does not earn enough dollars to pay back dollar-denominated external debts, the current dollar crisis will deepen the woes of the economy,” Adonri warns.
However, Tajudeen Olanrewaju, another senior dealing member of the Nigerian Exchange, rationalised some compelling reasons why the government may be tempted to continue its Eurobond issuances.
According to him, foreign currency inflows have declined significantly as foreign investors are increasingly cautious coming to Nigeria after the difficulties they had faced repatriating the proceeds of their investments at the peak of the Coronavirus lockdown last year.
According to the Managing Director, Valmond Securities Limited, raising Eurobonds which are denominated in hard currency offers relief from dollar demand pressure to the government and its monetary authorities.
“No matter the obvious advantages of raising funds from the local capital market for financing government’s gadget deficit, I do not foresee government limiting its borrowings to the local capital market in the nearest future until our foreign currency earnings from other sources improve,” said Tajudeen.
Nevertheless, he pointed out that another opportunity open for Government to raise funds is to explore the privatization of the Federal Airports including those of Kano, Lagos, Port Harcourt, and Abuja International Airports.
President Buhari’s 2022 budget proposal of N16.39trillion presented to the National Assembly on October 7, 2021, represents an increase of 19.7 per cent over the 2021 budget.
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