Nigeria’s debt servicing in the first seven months of 2024 surged by 53.63%, rising to $2.78 billion, a significant increase from the $1.81 billion recorded during the same period in 2023. This increase was revealed in the Weekly International Payments data published by the Central Bank of Nigeria (CBN).
The CBN data indicates that May saw the highest external debt servicing payment of $854.36 million, followed by $560.51 million in January and $542 million in July. In contrast, February, March, and April recorded payments below $300 million, with June witnessing the lowest payment of $50.82 million.
For comparison, the highest amount paid in 2023 was $641.69 million in July, with March following at $400.47 million. Similar to 2024, other months remained under the $300 million threshold, with the lowest payment of $54.35 million in June.
Debt servicing forms a substantial portion of Nigeria’s weekly international payments. As of the end of the first quarter of 2024, Nigeria’s total public debt stood at ₦121.67 trillion ($91.46 billion), a marked increase from ₦97.34 trillion ($108.23 billion) at the end of 2023. According to the Debt Management Office (DMO), this rise is attributed to new borrowing and the depreciation of the naira.
Tajudeen Ibrahim, Director of Research and Strategy at Chapel Hill Denham, noted that the devaluation of the naira and an actual increase in debt value due to more borrowing, both internationally and domestically, have significantly contributed to the rise in debt servicing costs. Experts caution that Nigeria could face a debt trap if it continues to take on loans at higher rates, particularly given its low credit rating, which limits access to cheaper funding. The increasing debt servicing costs could adversely impact the country’s recurrent and capital expenditures.
In May, Fitch Ratings revised Nigeria’s Long-Term Foreign-Currency Issuer Default Rating outlook to positive from stable, projecting that debt servicing would reach $4.8 billion in 2024 and $5.2 billion in 2025. Despite the Nigerian government’s focus on domestic borrowing, the report highlights a substantial portion of Nigeria’s external reserves is held in foreign exchange bank swaps.
President Bola Tinubu has expressed his administration’s commitment to curbing the cycle of overreliance on borrowing for public spending, which exacerbates the strain on managing government resources due to debt servicing.
At the state level, 22 states spent ₦251.79 billion on debt servicing within nine months of assuming office, while obtaining additional loans of ₦310.99 billion between July 2023 and March 2024, despite increased allocations from the Federation account.
In August, Nigeria launched a $500 million domestic Federal Government US dollar bond under its $2 billion programme, targeted at pension funds, banks, and Nigerians both at home and in the diaspora. This bond issuance is expected to boost external reserves and help stabilise the naira.
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Uche Uwaleke, a Professor of Capital Market at Nasarawa State University, highlighted the bond’s potential benefits, including offering a risk-free return on investments and helping to strengthen the naira by providing an alternative and cheaper source of financing. However, economist Marcel Okeke raised concerns about the risk of dollarisation in the economy due to the dollar-denominated local bond issuance, warning that this could weaken the naira further and lead to a “bi-monetary” system in Nigeria.
