Latest data from the Central Bank of Nigeria (CBN) reveals that the country has spent a total of $15.55 billion on debt servicing between 2019 and 2024. In 2019, Nigeria paid $588.33 million in debt service between January and May, while the payment for 2020 surged to $5.40 billion.
Debt service payments continued to increase in subsequent years, with $2.02 billion paid in 2021, $2.34 billion in 2022, and $3.43 billion in 2023. Between January and May 2024, Nigeria has already paid $2.18 billion in debt service, reflecting a 270.9% increase compared to the $588.33 million paid during the same period in 2019.
The $2.18 billion paid by May 2024 is approaching half of the $4.8 billion projected for the year by Fitch Ratings.
This increase occurs despite the government’s assertions that they are switching to domestic borrowing. Fitch Ratings also predicts that the country’s external debt servicing will rise by $400 million to $5.2 billion next year, raising concerns about Nigeria’s debt sustainability.
According to the CBN’s International Payments Data, the highest expenditure on debt financing within the last five years was in 2020, amounting to $5.40 billion. Nigeria’s external debt service payments saw a significant increase of $1.1 billion, reaching $3.5 billion in 2023, as reported by FBNQuest Research. This breakdown includes $1.9 billion in market debt payments and $1.6 billion in non-market debt payments.
Furthermore, the Federal Government plans to take on additional external debt, including N1.8 trillion in commercial borrowing and N1.1 trillion in concessional loans, as outlined in the 2024 budget. BNQuest Research anticipates a further increase in external debt service payments, in line with Fitch Ratings’ predictions, due to the government’s plans to access commercial debt markets and expected growth in borrowings from concessional sources.
Recently, the government received $2.25 billion from the World Bank to support President Bola Tinubu’s economic reforms. The two-fold packages include $1.5 billion for the Nigeria Reforms for Economic Stabilization to Enable Transformation Development Policy Financing Program and $750 million for the Nigeria Accelerating Resource Mobilization Reforms Program-for-Results.
The Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, stated, “We have undertaken bold and necessary reforms to restore macroeconomic stability and put Nigeria on a path to sustainable and inclusive economic growth. These reforms will create quality jobs and economic opportunities for all Nigerians.”
For a stabilised economy, Nigeria needs to develop a strategic approach in reducing debt burdens on the economy, possible ways on reduce rising debt servicing cost includes
1. Increase Fiscal Responsibility: Nigeria should enhance fiscal responsibility by implementing stringent budgetary controls and improving revenue collection mechanisms.
2. Diversify the Economy: Reducing dependence on oil revenues by diversifying into other sectors such as agriculture, technology, and manufacturing can help stabilize the economy and provide alternative sources of income.
3. Strengthen Domestic Debt Market: Developing a robust domestic debt market can provide a more sustainable borrowing alternative and reduce exposure to foreign exchange risks associated with external debt.
4. Enhance Debt Transparency: Improving transparency around debt agreements and terms can help manage public perception and ensure that borrowing is done under the most favorable conditions.
5. Promote Public-Private Partnerships: Encouraging public-private partnerships (PPPs) for infrastructure projects can help reduce the government’s direct borrowing needs while leveraging private sector efficiency and funding.
Bottom Line:
Despite government efforts to switch to domestic borrowing, Nigeria’s debt servicing costs have surged dramatically, reaching $15.55 billion between 2019 and 2024. With projections indicating further increases, strategic fiscal management and economic diversification are crucial to ensuring long-term debt sustainability and economic stability.
