Nigeria’s Foreign Debt Servicing Hits $3.58bn in Nine Months, Pressuring Budgets

 

The Nigerian government spent a staggering $3.58 billion on servicing foreign debt within the first nine months of 2024, marking a significant 39.77% increase compared to the $2.56 billion expended over the same period in 2023.

This data, drawn from a recent report on international payment statistics by the Central Bank of Nigeria (CBN), reflects a concerning rise in the country’s foreign debt obligations amid depreciating currency values.

According to the report, the most substantial monthly debt servicing payment occurred in May 2024, totaling $854.37 million. This is a substantial 286.52% increase from May 2023’s $221.05 million.

Meanwhile, the highest monthly payment for 2023 was $641.7 million in July, underscoring the trend of Nigeria’s escalating debt costs.

Detailed analysis of monthly payments further illuminates the trend.

In January 2024, debt servicing costs surged by 398.89%, reaching $560.52 million, a significant rise from $112.35 million in January 2023. However, February saw a modest reduction of 1.84%, with costs decreasing from $288.54 million in 2023 to $283.22 million in 2024. March also recorded a decline of 31.04%, down to $276.17 million from $400.47 million the previous year.

Additional fluctuations in debt payments continued throughout the year, with June witnessing a slight decrease of 6.51% to $50.82 million from $54.36 million in 2023. July 2024 payments dropped by 15.48%, while August showed a 9.69% decline compared to 2023. September, however, reversed the trend with a 17.49% increase, highlighting persistent pressure on foreign debt obligations.

With the rise in exchange rates exacerbating these financial strains, Nigeria’s foreign debt servicing costs are projected to remain elevated.

The central bank’s data highlights how these obligations are stretching national resources as the naira’s devaluation continues to impact debt repayment in dollar terms.

Rising State Debt Levels Add Pressure

The federal government’s debt challenges are mirrored by state governments, whose collective debt rose to N11.47 trillion by June 30, 2024.

Despite allocations from the Federal Accounts Allocation Committee (FAAC) and internally generated revenue (IGR), states remain heavily reliant on federal transfers to meet budgetary demands.

According to the Debt Management Office (DMO), the debt burden for Nigeria’s 36 states and the Federal Capital Territory (FCT) rose by 14.57% from N10.01 trillion in December 2023.

In naira terms, debt rose by 73.46%, from N4.15 trillion to N7.2 trillion, primarily due to the naira’s depreciation from N899.39 to N1,470.19 per dollar within six months. External debt for states and the FCT also increased from $4.61 billion to $4.89 billion during this period.

Further data from BudgIT’s 2024 State of States report illustrates how reliant states are on federal support. The report revealed that 32 states depended on FAAC allocations for at least 55% of their revenue in 2023.

In fact, 14 states relied on FAAC for 70% or more of their revenue. This heavy dependence on federal transfers underscores the vulnerability of states to fluctuations in federal revenue, particularly those tied to oil prices.

The economic challenges facing both the federal and state governments are stark. The combination of mounting foreign debt, fluctuating exchange rates, and high reliance on federally distributed revenue suggests a need for fiscal reforms to bolster revenue generation and reduce vulnerability to external shocks.

With foreign debt obligations continuing to grow, the report emphasizes the urgency for Nigeria to address its debt sustainability to foster long-term economic stability.