Nigeria’s debt servicing costs surged by 53.63% in the first seven months of 2024, rising to $2.78 billion from $1.81 billion during the same period in 2023. This significant increase of $971.47 million underscores the growing financial strain on the nation as it grapples with mounting debt and a depreciating currency.
Data from the Central Bank of Nigeria (CBN) reveals that external debt servicing reached its peak in May, consuming $854.36 million, followed by $560.51 million in January and $542 million in July. Other months, including February, March, and April, saw debt servicing remain below the $300 million mark, with June recording the lowest expenditure at $50.82 million.
In 2023, Nigeria’s highest monthly payment on external debt servicing was $641.69 million in July, followed by $400.47 million in March, with the other months staying under the $300 million threshold. This year’s trend reflects an overall increase, driven by both new borrowings and currency devaluation.
Rising Debt and Its Implications The Debt Management Office (DMO) reports that Nigeria’s total public debt stood at N121.67 trillion ($91.46 billion) at the end of the first quarter of 2024, up from N97.34 trillion ($108.23 billion) at the end of 2023. This increase 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 N24.33 trillion increase in debt, often misinterpreted as new borrowing, actually includes N2.81 trillion as part of the new domestic borrowing provided in the 2024 Appropriation Act, N4.90 trillion from the securitization of Ways and Means Advances, and the impact of naira depreciation from $1/N899.39 in Q4 2023 to $1/N1,330.26 in Q1 2024.
Expert Insights and Warnings Tajudeen Ibrahim, Director of Research and Strategy at Chapel Hill Denham, explained that the surge in debt servicing costs is partly due to the naira’s devaluation and an increase in the overall debt burden. He noted, “There is a foreign currency translation impact on debt servicing, and the second factor is the actual increase in the debt value itself due to additional borrowing, both internationally and locally.”
Market analysts have warned that Nigeria risks falling into a debt trap if it continues to borrow at current rates. With a low credit rating limiting access to cheaper funding, the burden of debt servicing could further strain the country’s recurrent and capital expenditures. Experts recommend that the government should either curtail borrowing or ensure that funds are allocated strictly for capital expenditures rather than consumption.
In May, Fitch Ratings revised Nigeria’s outlook to positive from stable, affirming its Long-Term Foreign-Currency Issuer Default Rating at ‘B-’. The agency projected that Nigeria’s debt servicing would reach $4.8 billion in 2024 and $5.2 billion in 2025, highlighting the ongoing financial challenges the country faces.
Domestic Debt and Dollar Bond Issuance Despite the government’s focus on domestic borrowing, Nigeria introduced a $500 million domestic FGN US dollar bond in August as part of its $2 billion program. This bond is aimed at pension funds, banks, and both local and diaspora investors. Analysts believe that the bond offering could bolster Nigeria’s external reserves and help stabilize the naira.
However, some economists have raised concerns about the potential dollarization of Nigeria’s economy due to the domestic dollar-denominated bonds. Marcel Okeke, a former Chief Economist of Zenith Bank Plc, warned that this move could undermine the naira and lead to a bi-monetary system, which might weaken the national currency further.
A Grim Outlook for Debt Sustainability With the Federal Government projecting N8.25 trillion in debt servicing for 2024, and state governments already spending N251.79 billion to service debt in just nine months, Nigeria’s fiscal outlook remains challenging. As President Bola Tinubu’s administration emphasizes reducing reliance on borrowing, the pressure on the government to find sustainable solutions to the debt crisis continues to mount.
This growing debt burden, coupled with the ongoing economic challenges, underscores the urgent need for Nigeria to adopt more prudent fiscal policies to avoid deepening the nation’s financial woes.
