Latest data obtained from the Central Bank of Nigeria (CBN) has revealed that Nigeria spent about $3.07 billion towards servicing external debt.
This represents a 38 per cent increase, higher than the $2.22 billion spent in the corresponding period of 2022, thus highlighting a persistent strain on Nigeria’s foreign exchange resources.
External debt is that part of the total debt in a country that is owed to offshore creditors. The debtors can be the government, corporations or private households. The debt includes money owed to private commercial banks, other governments, or international financial institutions.
According to data from the apex bank which covered January – October 2023, out of the $6.11 billion in total outflows made during the period, a substantial amount of $3.07 billion was directed towards servicing external debt. This figure represents a hefty slice of the nation’s financial resources and indicates a significant increase from the previous year.
A monthly breakdown of the debt service payments reveals a fluctuating, yet consistently high expenditure pattern. For example, the CBN paid $112.35 million on external debt servicing in January; $288.54 million in February; $400.47 million in March; $92.85 million for April; $221.05 million in May; $54.36 million for June; $641.69 million in July; $309.96 million in August; $439.06 million in September and $509.73 million in October.
These figures collectively account for the $3.07 billion spent on foreign debt service.
This financial strain, experts note, is further compounded by Nigeria’s ongoing challenge of offsetting a $7 billion forex exchange backlog.
The CBN, while stating that almost $2 billion made in payments as regards FX backlogs, stressed recently that it was doing everything within its power to clear outstanding requests for FX, including from companies who want to repatriate their profits.
However, the backlogs remain significant following the Minister of Finance, Wale Edun’s comment during a recent interview with Bloomberg in which he stated that the backlog was in the region of about $5 billion.
This slow progress in clearing the backlog adds another complexity to Nigeria’s external debt scenario.
Nigeria spent about 277.64 per cent of its revenue servicing its external debt in the third quarter of 2023, according to the latest data from the Debt Management Office (DMO).
The DMO noted that external debt decreased due to the redemption of a $500 million Eurobond and payment of $413.859 million as the first principal repayment of the $3.4 billion loan obtained from the International Monetary Fund (IMF) in 2020 during COVID-19.
There have been concerns over the country’s rising debt costs over the years. In its 2022 Debt Sustainability Analysis Report, the DMO warned the projected government’s debt service-to-revenue ratio of 73.5 per cent for 2023 was high and a threat to debt sustainability.
It also noted that the government’s current revenue profile could not support higher levels of borrowing.
Recently, the World Bank expressed deep concern over the escalating debt service costs that are burdening developing countries worldwide. Indermit Gill, the World Bank’s Chief Economist, and Senior Vice President, emphasized the gravity of the situation, highlighting the potential for a widespread financial crisis if immediate and coordinated actions were not taken. According to Gill, the combination of record-level debt and soaring interest rates has set many developing nations on a precarious path, one that could lead to economic distress and tough decisions regarding the allocation of resources.