Nigeria’s Debt Servicing Soars by 54% as External Repayments Hit New Highs
Nigeria’s debt servicing payments have surged significantly in the first seven months of this year, climbing by 53.63 per cent to $2.78 billion, up from $1.81 billion in the same period of 2023. This increase, amounting to $971.47 million, underscores the growing financial burden facing the nation as it grapples with a combination of rising debt levels and the devaluation of the naira.
The figures, disclosed in the Central Bank of Nigeria’s (CBN) Weekly International Payments data, reveal a stark rise in external debt servicing obligations. The highest amount recorded was in May, at $854.36 million, followed by $560.51 million in January and $542 million in July. In contrast, February, March, and April each saw debt servicing payments remain below $300 million, with the lowest payment made in June at $50.82 million.
Comparatively, in 2023, the peak for external debt servicing was $641.69 million in July, with other months generally maintaining lower figures, such as $400.47 million in March and a low of $54.35 million in June. This year’s data reflects a pattern of escalating debt payments that diverges sharply from last year’s more modest outflows.
Debt servicing has become a substantial component of the Central Bank of Nigeria’s international payments, reflecting the broader challenge of managing the country’s debt. According to the Debt Management Office (DMO), Nigeria’s total public debt stood at N121.67 trillion ($91.46 billion) as of March 31, 2024, up from N97.34 trillion ($108.23 billion) at the end of 2023. This includes N65.65 trillion ($46.29 billion) in domestic debt and N56.02 trillion ($42.12 billion) in external debt.
The DMO clarified that the increase in naira-denominated debt was largely due to new borrowings and currency devaluation. “The increase in naira terms of N24.33 trillion is being misinterpreted as new borrowing,” the DMO stated, noting that this figure includes N2.81 trillion in new domestic borrowing outlined in the 2024 Appropriation Act, and N4.90 trillion in new domestic borrowing linked to the securitisation of the N7.3 trillion Ways and Means Advances, as well as depreciation in the official naira exchange rate.
Tajudeen Ibrahim, Director of Research and Strategy at Chapel Hill Denham, echoed the DMO’s analysis, highlighting the dual impact of increased debt levels and naira devaluation on the rising cost of debt servicing. “There is a foreign currency translation impact on the debt servicing, and the second factor is the actual increase in the debt value itself because, in the period that you are looking at, Nigeria has taken on more debt both internationally and locally,” Ibrahim explained.
Concerns are mounting among market analysts about Nigeria’s growing debt burden. Many warn that without a strategic shift, the country could find itself trapped in a cycle of escalating debt repayments. With limited access to cheaper funding due to a low credit rating, Nigeria faces increasing costs for debt servicing, impacting both recurrent and capital expenditures.
In light of these challenges, experts have suggested that Nigeria should either halt further borrowing or focus on loans specifically aimed at capital expenditures rather than consumption.
Despite these warnings, the international rating agency Fitch Ratings recently revised Nigeria’s outlook from stable to positive, affirming the Long-Term Foreign-Currency Issuer Default Rating at ‘B-‘. Fitch projected that Nigeria’s government external debt service will reach $4.8 billion in 2024 and $5.2 billion in 2025. The agency noted that the government plans to meet its external financing obligations through a mix of multilateral lending, syndicated loans, and potentially commercial borrowing.
However, Fitch’s projections come even as the current administration has vowed to prioritise domestic borrowing from the capital markets. Notably, Nigeria recently issued a $500 million domestic FGN US dollar bond under a $2 billion programme, targeting both local and diaspora investors. Analysts believe that this could bolster external reserves and provide some stabilisation for the naira.
Professor Uche Uwaleke of Nasarawa State University, an expert in capital markets, highlighted the benefits of such bond issuances for both investors and the economy. “It provides an opportunity to earn a risk-free return on investments… and it allows retail and institutional investors to diversify their portfolios,” Uwaleke noted.
However, some experts have raised concerns about the implications of dollar-denominated bonds for Nigeria’s economy. Marcel Okeke, a former Chief Economist at Zenith Bank Plc, warned of the risk of dollarisation. “The ongoing issuance of domestic dollar-denominated bonds is outright dollarisation of the economy… This implicit dollarisation of the Nigerian economy portends a further weakening and relegation of the naira,” Okeke argued.
As Nigeria continues to navigate its complex debt landscape, the balance between managing debt repayments, securing new funding, and maintaining economic stability remains a critical challenge for policymakers.
