Commentary@ITRealms:
It’s very much unlikely that there is
an adult person, man or woman, who has never borrowed money at one time or the
other. It could be from an individual such as parents, brother or sister,
friends or from a lending institution. Institutions, states and nations, just
like individuals also borrow to augment revenue and execute projects.
But it is disputable to argue that
everyone saves. It is even more so to suggest that everyone engages in long
term saving, especially in this clime where there is, for the multitude, a huge
disparity between income and expenditure, with the later weighing
heavier.
Yet, some experts have argued that
anyone who earns income is capable of saving a part of it, notwithstanding the
pay cheque. It is a matter of re-ordering priorities, they argue. Saving is
good, especially if it is done on a medium to long term basis with a financial
institution that pays interest on savings. It will not only allow one save for
the rainy day, as they say, but also allows the money to grow.
But this argument is not persuasive
enough in Nigerian where financial institutions pay meagre interest on savings,
mostly in single digit. Yet when they want to lend the money they charge double
digits interest.
This is why the Federal Government
Saving Bond that is billed to go on sale later this month is a game changer for
Nigerians, especially for retail investors who have not been prominent players
in the country’s capital market. The Debt Management Office, MO, announced last
week that the FG will put on sale savings bonds with two to three year
maturities.
Although Interest rate for the bond
has not been announced yet, but going by the rate of other FG bonds, it is
expected to be up to 16.5 percent or more, and will be paid quarterly. The
bond offer will open on March 13 and end after five days, the debt
office said, adding that new issues will be sold every month.
The FG intended to raise money locally to offset
growing budget deficit through the bond. The government depends on local
borrowing to fund more than half its budget deficit, which is expected to reach
N2.36 trillion this year. It issued a $1 billion Eurobond in February and is
now seeking National Assembly’s approval for an additional $500 million
Eurobond.
There is a plan to also put on offer a N20 billion
“Green Bond” in April this year. This is in addition to a plan to sell a $300
million Diaspora Bond abroad this year and its first Sovereign Sukuk in the
local mark.
While the government looks to raising fund to finance
critical infrastructure projects such as power, roads and rail, and projects
aimed at diversifying the economy away from oil and gas, the judicious use of
the funds generated will no doubt bring positive turn-around to the
economy.Experts have agreed that considering the huge infrastructural deficit
currently being experienced in the country and the enormous financial resources
required to fill the gap in the face of dwindling government revenue and the
inability of our annual budget to bridge the infrastructure deficit, it has become
necessary to resort to prudent external and domestic borrowing to bridge the
gap.
Spending
on critical capital projects as one planned by the Muhammadu Buhari
administration is one of the surest and fastest ways of reflating an economy in
depression. Not only would businesses that have closed shop open for business
again, but Nigerians who had lost their jobs due to recession would get them
back. This would have immediate multiplier effect on all sectors of the
economy.
But
while the savings bond will help government mobilise domestic resources for
deployment into important capital projects to reflate the economy, the savings
bond also as its benefit for the ordinary Nigerians.
The bond issuance is part of the
Federal Government programme targeted at the lower income earners to encourage
savings. Up till now, you have to be among the high-net worth Nigerians to be a
player in the capital market and earn fantastic returns on your investments.
The FG Saving bond will change all that as ordinary Nigerians with as low as
N5000 have the opportunity to invest in this bond. Not only would such persons
be saving money for important personal projects, but they will also be in a
position to earn more income through double digit interest to be paid on the
bond.
Thus the bond enables
individuals to enjoy those benefits which accrue to high net-worth investors in
the capital market at a competitive fixed interest rate. Moreover, the
income earned from interest are tax exempt and the FGN SB Certificate can be
used as collateral for bank loan.
One of the strongest rationale for
the bond, according to Dr Abraham Nwankwo, Director General of the Debt
Management Office, MO, is to “democratise” participation in the investment
market so that all classes of Nigerians are partakers. In order words, the FGN
saving bond will make investment in the capital market more inclusive and less
exclusive as it presently is.
“FGN SB is made to cater
for the interest of all groups in the country, all classes of people. The
existing instruments, including the Eurobond and other government securities
are for the big players. Now we want to democratise it with this bond which is
a retail bond. We want those who have smaller income to also participate. It is
for all classes of investors, but targeted at the low income,” Nwankwo said in
an interview with Channels Television.
While the minimum subscription for other FGN bonds is
N50 million, the minimum subscription for the FGN Savings bond is N5, 000.
In a country where pension payment
has become a thorny issue, and hundreds die waiting for either gratuity or
pension, the bonds offer securities for old age. For those still active, the
bonds will be good products for savings towards important personal projects
such as marriage, school fees, house rent and sundry expenses that salaries or
monthly incomes cannot cover.
The bonds also have the potential to bring some
positive changes in the banking sector, such as making banks increase the
interest they pay their customers. Savings accounts at Nigeria’s commercial
banks pay up to 5 percent in interest which is well below the monetary policy
rate (MPR) of 14 percent, but the country’s inflation is running at more than
18 percent annually.
Meanwhile banks charge as high as 23 percent to
customers on loans, but pay far less on deposits.
The savings bond offer could push deposits out of
commercial banks into Government bonds in which retail investors are mostly
shut out of currently. That may put pressure on the banks and force a reform.
The DMO has also addressed concern that the FGN
savings bond may increase government borrowing. Nwankwo said the bond is not an
happenstance but one of the various instruments the government intend to use to
raise loans approved by the National Assembly annually from the
administration’s borrowing plan. “The bond is merely an instrument for
complementing the various borrowing government do every year when there is a
deficit in the budget. The bond will be part of the instrument to borrow what
is needed for the economy,” he clarified.
For potential investors who may not be able to afford
the luxury of waiting for two or three years for the bond to mature, there is
no cause for alarm. Nwankwo said the bond will be listed on the Nigeria Stock
Exchange, and will be traded everyday. So, if a holder of a two-year bond needs
the money after six months, he just goes to his broker who takes it to the secondary
market for sale, and he gets his money immediately.
Already not less than 98 stock brokers had been
accredited for the sale of the bond.
*Amarachi Eshiogu
wrote in from Abuja
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