In a recent report, the Central Bank of Nigeria (CBN) revealed that Nigeria’s external debt servicing gulped N560 million in January 2024. BAMIDELE OGUNWUSI writes on debt servicing burden as Nigeria grapples with economic challenges.
A recent data has revealed that the federal government disbursed $560 million towards servicing the country’s external debt in January 2024.
An in-depth analysis of the Central Bank of Nigeria (CBN) Weekly International Payments underscores the significant surge in debt servicing expenditures, marking a substantial 339 per cent increase compared to the $112 million disbursed in January 2023.
This surge in debt servicing expenditure follows a trend of escalating costs in previous years. In 2023 alone, Nigeria allocated a total of $3.5 billion towards servicing its external debt, reflecting a notable escalation from the $2.4 billion disbursed in 2021.
Delving deeper into the monthly breakdown of Nigeria’s debt servicing in 2023 illuminates dynamic patterns, providing insights into the country’s economic landscape.
The year commenced with a modest debt servicing expenditure of $112 million in January, which experienced a remarkable surge to $288 million in February.
This momentum persisted into March, witnessing a further escalation to $400 million. April witnessed a temporary dip, with debt servicing dropping to $93 million, only to rebound in May, totaling $221 million.
June marked a noticeable adjustment at $54 million, whereas July emerged as a peak month, soaring to $641 million.
August experienced a significant decline, plummeting to $310 million, while September saw an uptick, climbing to $439 million.
In October, debt servicing amounted to $509 million, followed by a decrease in November to $368 million.
The year concluded with a notable decrease in December, reaching $65 million, before peaking once again at $560 million in January 2024.
The fluctuating trends in Nigeria’s debt servicing expenditures underscore the complexities of managing external debt amid economic uncertainties.
As the country navigates these challenges, attention to fiscal prudence and effective debt management strategies remains paramount to ensure sustainable economic growth and stability.
In its latest 2024 Nigeria Economic Outlook report, PwC, a professional services firm projected that debt service could rise from N8.25 trillion in 2024 to N9.3 trillion in 2025 and further to N11.1 trillion in 2026.
“With a high debt servicing to revenue ratio, the government aims to increase domestic debt in 2024 to meet its deficit funding requirements,” the report said.
It said the shift towards more domestic borrowing could impact the private sector, as government credit constitutes 37 percent of net domestic credit, which saw a 28 percent increase from January to September 2023.
“Additionally, Nigeria grapples with a low domestic credit-to-GDP ratio of 12 percent in the first quarter of 2023, lagging behind countries like South Africa, Egypt, and Morocco.”
Authors of the report also highlighted that the country’s deficit has grown by 370 percent from 2015 to 2023, which has led to a high debt and debt servicing profile.
“Though debt stock to GDP is comparatively low at 37.1 per cent, the debt servicing to revenue ratio remains high at 124 per cent as of the first half of 2023. In 2024, the government aims to reduce the budget deficit to around 3.9 percent (N9.18 trillion) of GDP, down from 6.1 percent in 2023, through reduced spending,” they said.
Over the past nine years, the actual cost of servicing debt has been more than the budgeted amount.
Analysis of the available data from the Budget Office of the Federation and BudgIT, a Nigerian civic organisation, shows that it rose to N5.79 trillion in the first nine months of last year from N908.9 billion in the same period of 2015
Adeola Adenikinju, professor of economics and president of the Nigerian Economic Society, said much of the country’s debt is not spent on things that can pay for themselves or can lead to capital for development.
“You will find out in the future that we will be depicting what is available for the future generation to finance the debt that we have incurred in the past,” he said.
Africa’s biggest economy has seen its public debt grow steadily to levels that have left many worried as government revenues remain low. Its debt-to-GDP ratio was increased from 25 percent to 40 percent in 2021.
Debt service costs gobbled up 96.3 percent of government revenue in 2022, up from 83.2 per cent in the previous year, according to the World Bank.
As of September 2023, debt service was N5.66 trillion, representing 40 per cent of aggregate expenditure and 64 per cent of revenue, Atiku Bagudu, minister of budget and economic planning said while presenting the highlights of the 2024 budget proposal.
He said the debt service cost exceeded the budget by N1.68 trillion mainly due to interest on Ways and Means of N1.89 trillion and generally higher interest rates on borrowings.
The Debt Management Office said in September that the total public debt rose to N87.38 trillion in the second quarter of last year from N49.85 trillion in Q1. It increased to N87.91 trillion at the end of Q3.
A recent report by the United Nations titled ‘A world of debt’ said the growing burden to global prosperity has been translating into a substantial burden for developing countries due to limited access to financing, rising borrowing costs, currency devaluations and sluggish growth.
“Countries are facing the impossible choice of servicing their debt or serving their people. Today, 3.3 billion people live in countries that spend more on interest payments than on education or health. A world of debt disrupts prosperity for people and the planet,” it said.
The PwC report noted that an increase in debt concerns which has led to a lowering of credit ratings may lead to an increase in the cost of international funds.
“This may increase the demand pressure on forex to meet future FX debt service obligations. This is evident in the decline in capital importation from $24 billion in 2019 to $2.8 billion as of Q3 2023. However, an expected lower interest rate environment may balance this out,’” it said.
The firm also revealed seven key trends shaping Nigeria’s economic trajectory in 2024.
It predicted that investors will be cautiously optimistic, consumers may likely adjust better to the evolving policy and macro realities and the country may witness improved sectoral development riding on reforms.
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