The growing amount of debt in Nigeria and the associated expenses of servicing it have alarmed analysts and observers of the economy.
Nigeria’s total public debt, as reported by the Debt Management Office in June, was N121.67 trillion, up 24.99 percent or N24.33 trillion in just three months.
The report read, “Nigeria’s total public debt stood at N121.67tn ($91.46bn) as of March 31, 2024. The comparative figure for December 31, 2023, was N97.34tn ($108.23bn). Total domestic debt was N65.65tn ($46.29bn) while total external debt was N56.02tn ($42.12bn).”
Providing clarification about the increase in the public debt, DMO said, “The increase in naira terms of N24.33tn is being misinterpreted as new borrowing. The amount represents new borrowing of N2.81tn as part of the new domestic borrowing of N6.06tn provided in the 2024 Appropriation Act, new domestic borrowing of N4.90tn as part of the securitisation of the N7.3tn Ways and Means Advances approved by the National Assembly, as well as, the depreciation in the official naira exchange rate from USD/899.39 in Q4, 2023 to USD/N1,330.26 in Q1, 2024.”
Additionally, rising interest rates and the depreciation of the local currency versus the dollar drove debt servicing costs, which by the end of the first quarter of 2024 amounted to $1.12 billion.
According to an analysis conducted by Cowry Asset Management Limited, the debt service costs associated with multilateral loans accounted for 57% ($634.3m) of the total. Bilateral loans and commercial loans followed at 18% ($197.4m) and 26% ($288.2m), respectively.
According to DMO data, rising debt stock—which reached N61.6tn—was a major factor in the N989bn domestic debt payment costs for the review period.
Interest payments on federal bonds increased to N797 billion, which makes up over 80% of the costs associated with servicing the nation’s debt.
Additionally, in the first quarter of 2024, payments on Nigerian Treasury Bills—the second-largest component of debt service—rose to N97 billion.
Furthermore, the principal repayments on the N87 billion Federal Government promissory notes constituted the third largest component of debt service.
The period’s higher interest rate environment, which was a reflection of the Central Bank of Nigeria’s monetary tightening efforts, was the cause of the increase.
There won’t be any quick relief for Nigeria’s debt levels and debt servicing expenses, according to analysts at Cowry Research.
“Financing costs are expected to continue consuming a larger portion of the Federal Government’s revenues, while the local currency remains weak against the dollar and the interest rate environment remains tight, reflecting the Central Bank’s monetary tightening measures.
“Given the government’s activities in the domestic capital market so far in 2024, it is anticipated that approximately N3tn will be raised from subsequent FGN Bond issuances. This is part of an effort to meet its funding target of N6.06tn in domestic borrowing and N1.77tn in foreign borrowings, as outlined in the N28.77tn 2024 budget,” they said.
