The Debt Management Office (DMO) has opened the subscription offer for May FGN savings bonds, priced at N1,000 per unit.
The two-year savings bond maturing on May 15, 2026, is to be offered at an interest rate of 17.407% per annum.
The three-year savings bond with a maturity date of May 15, 2027, features an interest rate of 18.407% per annum.
These interest rates represent the highest ever offered by the DMO on FGN Savings Bonds, as the country moves in the direction of a further rate hike.
The subscription for these bonds began on May 6, 2024, and will continue until May 10, 2024, as per an announcement made by the DMO. Settlement is scheduled for May 15, 2024, with quarterly coupon payment dates set for August 15, November 15, February 15, and May 15.
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Rising interest rates
In recent months, Nigeria has witnessed a significant surge in interest rates on government securities, reaching as high as 19%.
- This sharp increase aligns with the Monetary Policy Rate (MPR), reflecting the Central Bank of Nigeria’s (CBN) hawkish stance aimed at curbing the inflationary pressures that have besieged the economy.
- By tightening monetary policy, the CBN intends to withdraw excess money from circulation, hoping to stabilize rising consumer prices.
- However, this approach carries a substantial fiscal burden. As the government implements measures to cool inflation, the cost of borrowing, particularly in the short term, escalates.
- This scenario poses a considerable challenge for future debt management and fiscal sustainability.
- Recent data illustrates this predicament starkly: Nigeria’s debt from Federal Government of Nigeria (FGN) Savings Bonds has more than doubled in just five years, ballooning from approximately N16.4 trillion in 2019 to N39.1 trillion in 2023.
The FGN Savings Bonds, primarily targeted at retail investors, have become a critical tool in the government’s debt strategy.
What you should know
Tailored for retail investors, these FGN savings bonds assure quarterly interest payments along with the repayment of the principal amount upon maturity.
- Saving bonds are offered at N1,000 per unit, with a minimum subscription of N5,000 and multiples of N1,000 thereafter, up to a maximum subscription of N50 million.
- These savings bonds, like other government securities, are backed by the full faith and credit of the federal government and charged upon the general assets of Nigeria.
- They also qualify as securities in which trustees can invest under the Trustees Investment Act.
- Moreover, they qualify as government securities within the meaning of the Company Income Tax Act and Personal Income Tax Act for tax exemption and pension funds, among other investors.
- Additionally, the bonds are listed on the Nigerian Exchange Limited (NGX) and qualify as a liquid asset for liquidity ratio calculation for banks.