Foreign investors’ holding in the Federal Government Bonds has continued to grow, hitting $5.112billion as at the end of 2012 following the transformation of the market by the Debt Management Office (DMO).
Prior to the establishment of DMO in 2000, debt management operations in Nigeria were undertaken in an uncoordinated fashion by various agencies of government leading to inefficiencies and less positive impact on the economy.
However, through the transformation efforts of agency, the debt management system has improved leading to many benefits. And one of the benefits, according to Director-General of DMO, Dr. Abraham Nwankwo, is the increase in foreign exchange inflows that had led to growth in external reserves and stability of the naira through the participation of foreign investors in bond market.
Nwankwo disclosed that as at the end of December 2012, foreign investors’ holding in FGN securities amounted to $5.112 billion, compared to about $500 million as at the beginning of 2012.
He added that the share of foreign investors had been rising consistently moving from 1.66 per cent as at the end of 2011 to 10.26 per cent as at the end of 2012.
This has improved to an average of 16.1 per cent and has been averaging 16.1 per cent between January and June 2013.
Nwankwo, who spoke through Head of Policy, Strategy and Risk Management, DMO, Mr Joe Ugoala, at the annual workshop of Capital Market Correspondents of Nigeria (CAMCAN) in Lagos, said the transformation of the bond market had facilitated market-based funding of appropriated budget deficits and bail-out/special borrowings.
“The current practice of financing part of the country’s fiscal deficits by borrowing from the bond market has not only led to the development of the domestic debt market, it has brought other salutary benefits for monetary policy operations and the economy,” he said.
The DMO boss said the transformation had removed conflict of interest by making clear separation of debt management functions from monetary policy operations, thereby allowing each agency, especially the CBN, to concentrate on its core mandate.
“The transformation of the bond market and raising funds from the market has subjected government’s borrowing to market discipline, using long-term as against short-term funds to finance long-term projects, which is a clear case of optimal asset-matching; significant reduction in refinancing risks through tenor elongation and establishment of a sovereign yield curve and benchmark for private sector borrowing,” he said.
Going forward, he said the focus of public debt management in Nigeria would remain maximising benefits from the domestic market and International capital market to motivate the private sector to mobilise stable capital for funding of real sector and infrastructure projects.