The increase in the Monetary Policy Rate (MPR) by the Central Bank of Nigeria (CBN) in an effort to combat double-digit inflation is driving Pension Fund Administrators (PFAs) to gilt edge securities, with their exposure to federal government papers increasing by nearly 17% to N29.66 trillion in the first quarter (Q1) of 2023 from N25.36 trillion in the first quarter (Q1) of 2022.
FGN Bonds, Treasury Bills, Agency Bonds, Sukuk, and Green Bonds are examples of federal government securities. Analysts say PFAs are investing in FGN securities in order to fight inflation and invest in risk-free securities. “There is a need for more financial products in the financial markets that can provide alternatives and high returns, such as Bonds.”
Meanwhile, further findings revealed that PFAs exposure in stock market closed Q1 2023 at N3.1 trillion, an increase of 7.4 per cent from N2.88 trillion in Q1 2022. The stock market in Q1 2023 added N2.44 trillion in market capitalisation to close on March 31, 2023 at N29.544 trillion from N27.915 trillion at which it opened for trading activities on January 3, 2023 but dropped by N857billion in March from N30.401trillion to N29.544trillion it closed for trading.
PFAs continued to benefit from the federal government borrowing to bridge 2022 budget financing.