Facts and Background of Federal Government of Nigeria (FGN) Bonds
The Nigeria Bonds market officially commenced in 1946 with the issue of the Nigerian Government registered stocks. This evolved into the Federal Republic of Nigeria Development Loan Stock (a.k.a. FRNDS) in 1963. Issues were suspended in 1987 but rejuvenated in 2003 with the 1st FGN Bonds series. We are currently on the 3rd FGN Bond series.
The Debt Management Office (DMO) was set-up in October 2000 while the Act establishing it came into force in June 2003. The Federal Government of Nigeria set up the Debt Management Office (DMO) with the mandate to restructure both external and internal debt in order to minimize the cost of financing its projects and maximize returns within an acceptable risk profile.
In terms of domestic debt, the objective for the DMO is to ease up repayment obligation and budgetary pressure on the Federal Government, by restructuring funding of: local debts (owed to contractors as well as pension liabilities); infrastructural projects; and fiscal deficit from short-term (1 year or less) using Treasury Bills, to long-term (over 2 years) using FGN Bonds.
Other reasons adduced for the introduction of FGN Bonds include:
- 1. To provide benchmark instruments that would lead to private sector issuance of longer term instruments
- 2.To encourage long-term savings
- 3.To assist in the development and reform of the pension fund sector.
The first FGN Bonds was issued in October 2003 (see total issued from inception).
Benefits to the FGN Bond Holder:
- 1. Tax free Income: interest received on FGN Bonds is not subject to withholding tax, company income tax, etc.
- 2. High and stable returns
- 3. Free from default risk: repayment is guaranteed at the maturity of the FGN Bond
- 4. Collateral for borrowing: the FGN Bond can be used as collateral to raise financing.
- 5. Easily Tradable as it has a unique quality of being quoted on the Nigerian Stock Exchange and can also be traded over the counter (OTC)
Mr Amangbo is an Executive Director in the Bank. He graduated with a B.Eng. in Electrical/Electronics from University of Benin in 1988 and holds an MBA. He worked in PricewaterHouseCoopers, before moving over to Zenith Bank Plc in 1993.
He has over 16years postgraduate experience out of which he spent 12years in the banking industry and 4years experience in PricewaterHouseCoopers.
