The Central Bank of Nigeria has incurred an estimated N1.55 trillion in interest payments for the 12 successful Treasury Bills (T-Bills) auctions conduced in the first six months of 2024.
The interest costs in 2024 were approximately 654.7% higher than the N205.63 billion recorded the same period of the previous year.
This is based on an analysis of the amount of T-Bills sold, the interest payments, and tenor in the period under review.
Data from the apex bank reveals that the apex bank has sold Treasury Bills worth N8.4 trillion in the first half of the year for tenors ranging from 91-days, 182-days and 364-day bills.
According to our findings, the stop rate, which is the interest rates accepted from the bids on offer, ranged from as low as 2.44% for some 91-day bills to as high as 21.49% for 364-day bills within the period under review.
The high interest cost is largely due to the central bank’s hawkish monetary policy aimed at curbing rising inflation rate. The central bank jacked up rates aggressively early in 2024 as part of its policy tools to mop up money supply from the economy.
What the data is saying
- The auction data indicates a total subscription of N28.15 trillion, with actual sales amounting to N8.48 trillion and an over-subscription of about 662.9%.
- The CBN had planned to sell just N2.67 trillion in its long-dated Treasury Bills.
- In total, the interest payment made by the central bank is N1.55 trillion, averaging 18% over the life of the securities under consideration.
- The total subscription in 2024 saw an increase of 174.1% compared to N10.27 trillion recorded in the same period last year.
- Also, total sales in 2024 surged by approximately 226.3% from N2.6 trillion in the first half of 2023.
- Although there were high subscriptions and sales, the initial amount offered was N3.69 trillion in the period under review, which is 60.4% higher than N2.3 trillion in the same period last year.
The oversubscription indicates how much demand was available for risk free high interest yielding securities.
Further Breakdown
- Based on our analysis, the apex bank has sold a total of N7.49 trillion in its 364-day tenured bills made up of around 14 sales rounds.
- Interest rates have ranged from 8.39% as of January 10, 2024, to as high as 21%, costing the central bank an estimated N1.499 trillion in interest payments.
- The 364-day bills contribute the most to the interest burden, with several auctions, such as those on 26th June 2024, 22nd May 2024, and 13th March 2024, yielding significant interest costs. For instance, the 364-day bill auction on 27th March 2024 alone accounts for an interest cost of approximately N238.95 billion, with a stop rate of 21.124%.
- While the 91-day and 182-day bills offer lower yields, they still contribute substantially to the overall interest costs amounting to N25 billion and N26.9 billion respectively.
- The auction on 26th June 2024 for a 182-day bill, for example, will cost the government N3.17 billion in interest, reflecting a stop rate of 17.44%. In total, while the 91-Day Tenor bills will cost N25.07 billion, the 182-Day Tenor bills will cost N26.97 billion.
What you should know
The N1.55 trillion interest cost raises concerns about the sustainability of government borrowing and its impact on the national budget.
With such high interest obligations, the government may face challenges in allocating resources to critical sectors such as infrastructure, healthcare, and education.
Additionally, the high yields required to attract investors suggest that confidence in the economy remains tentative, with inflationary pressures and exchange rate volatility contributing to risk perceptions.
Nairametrics earlier reported that Nigeria has a total Treasury Bills (T-Bills) debt of N10.4 trillion, a 60% rise in just three months, according to data from the Debt Management Office (DMO). This is the largest T-Bills debt balance on record based on an analysis by Nairalytics, the research arm of Nairametrics, dating back to at least 2010 per central bank records.
Treasury Bills have grown to be a major source of short-term expenditure for the government, especially under the All Progressives Congress (APC), growing from a balance of N2.8 trillion under the Peoples Democratic Party (PDP) government of Goodluck Jonathan to N10.4 trillion currently.
It was N5.8 trillion at the end of the second quarter of 2023, largely accumulated under the Muhammadu Buhari administration.
Moody’s Ratings recently noted that Nigeria’s interest spending may rise by 1% of the country’s GDP, costing about 36% of government revenue in 2024.
PricewaterhouseCoopers (PwC) also warned that the continuous increase in debt issuance by the federal government without a corresponding increase in revenue will worsen the country’s debt profile in the long run.