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‘Financing N9.18 trillion budget deficit locally could fuel bond market interest rates’- Former CIS Boss

The former President of the Chartered Institute of Stockbrokers and Managing Director/Chief Executive of Arthur Steven Asset Management Limited, Mr. Olatunde Amolegbe has projected a potential consequence of financing the budget deficit of N9.18 trillion in the local market.

Amolegbe noted that such an initiative may contribute to an escalation in interest rates within the bond market.

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He stated this while addressing participants at the 2023 market review and 2024 projection event recently organized by the Capital Market Correspondents Association of Nigeria (CAMCAN) in Lagos.

  • “The financing of the budget deficit of N9.18 trillion in the local market could lead to an increase in interest rate in the bond market,” he said. 

He emphasized that the privatization of government enterprises, leading to the sale of government assets, could serve as a viable strategy for reducing debt.

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Capital market participation

In an effort to enhance capital market participation and augment revenue, Amolegbe urged the federal government to foster an environment conducive to listing on the Nigerian market.

Encouraging such listings, he argued, would not only boost market activity but also contribute to overall economic growth.

He highlighted companies in which the government has direct or indirect holdings as well as companies that do business with the government. This he said not only boosts the capital market in the country but would engender transparency and boost tax revenue in the country.

Market capitalization to GDP

Amolegbe said that as against over 50% market capitalization to Gross Domestic Product as seen in many countries, Nigeria’s market capitalization to GDP stands at 13%.

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This he said is an indication that the majority of the big companies in the country are not participating in the Nigerian capital market. Noting that the capital market ensures transparency for companies listed, Amolegbe said increased listing on the capital market would see more tax revenue for the government.

  • “I believe the government needs to consider urging companies particularly those they have a direct holding in and those that have a huge business with the government to list on the market. 
  • A lot of businesses are not listed on the exchange and they do business a lot with government The more transparent the listing, the more tax revenue,” he said.

Expressing optimism on the listing of Dangote Refinery as well as NNPC Limited, he said it would boost the capitalization of the Nigerian capital market. He also charged the government on the rising spate of insecurity in the country saying until it is addressed, inflation will continue to soar and investors will remain wary of investing in the country.

  • “Insecurity is a major issue and govt needs to work on it as it is disrupting the supply chain this contributing to the increase in inflation rate. Farmers are not unable to produce and the ones that can produce can’t get to market,” he said. 

Also, he said as long as the environment is seen as unstable, investors, both local and foreign will continue to be wary of investing, leading to a further decline in foreign exchange inflow.

He furthered that foreign exchange will be a significant contributor to where the capital market will be by year-end.

  • “If liquidity improves and price stables then organizations can better plan. If not, 2024 might be a dicey year for a lot of quoted companies,” he said

What you should know

In the context of the 2024 budget estimates, the projected deficit is set at N9.18 trillion, equivalent to 3.88% of the gross domestic product (GDP).

Notably, President Bola Tinubu highlighted that this deficit figure is lower than the N13.78 trillion recorded in 2023, representing 6.11% of GDP.

President Tinubu outlined the financing plan for the deficit, indicating that it would be covered by new borrowings totaling N7.83 trillion, N298.49 billion from privatization proceeds, and a drawdown of N1.05 trillion on multilateral and bilateral loans secured for specific development projects.

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