CEM REPORT, ECONOMY| Nigeria’s external debt situation is a cause for growing concern, with debt servicing costs reaching record highs. According to the Central Bank of Nigeria’s (CBN) latest Quarterly Statistical Bulletin, the country spent a staggering $3.5 billion servicing its external loans in the 2023 fiscal year. This represents a significant 55% increase from the $2.6 billion spent in 2022.
The data paints a worrying picture of a growing dependence on external borrowing. A closer look reveals a steady escalation in debt servicing costs since 2017, CBN figures show Nigeria’s external debt servicing costs began modestly at $464.1 million in 2017. However, these costs have consistently risen, tripling to $1.472 billion by 2018. Despite a slight dip in 2019, the trend resumed, culminating in the record-high $3.503 billion in 2023. This trend highlights Nigeria’s increasing reliance on external funds amidst challenging global economic conditions.
“The rising debt service costs are putting a strain on the national budget,” says Dr. Aisha Mohammed, an economist at the Lagos Business School. “This means the government has less money to invest in crucial areas like education and healthcare, which can negatively impact long-term development.”
Impact on National Budget and Growth
The substantial increase in debt servicing has significant ramifications for Nigeria’s economic well-being. A large chunk of the annual budget is now allocated towards servicing debt, leaving less for critical sectors like infrastructure, education, and healthcare. This can hinder economic growth and development in the long run.
“Debt sustainability is a major concern,” warns financial analyst Obi Okoli. “If the debt continues to rise at this pace, it could deter foreign investors and lead to a credit rating downgrade, making it even more expensive for Nigeria to borrow money in the future.”
Roots of the Debt
Several factors have contributed to Nigeria’s rising external debt. The COVID-19 pandemic played a major role, forcing the country to seek external support as economic headwinds intensified.
Nigeria’s external debt stood at $27.6 billion before the pandemic but jumped to $33.4 billion as the country sought emergency funding. This included new IMF loans of $3.5 billion, and increased reliance on the World Bank’s International Development Association (IDA), whose balances rose from $9.6 billion to $14.9 billion by 2023.
Debt Composition and Repayment
Nigeria has diversified its external borrowing sources in recent years. While multilateral institutions like the World Bank and African Development Bank (AfDB) remain key lenders, the country has also tapped into commercial debt markets, with Eurobond debt rising from $10.8 billion to $15.1 billion. Additionally, bilateral loans from countries like China and France have also increased.
It’s important to note that Nigeria has made some efforts towards debt repayment. In mid-2023, the country successfully repaid a $500 million Eurobond loan obtained six years earlier. Eurobond repayments are typically funded through external reserves or dedicated funds. According to the Debt Management Office (DMO), this repayment brings the total amount repaid in international capital markets to $1.8 billion over the past six years.
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If You Ask Me
Nigeria’s rising external debt and its associated servicing costs pose a significant challenge to the country’s economic prospects. The government needs to implement sustainable solutions to manage this growing burden.
“A diversified revenue base is crucial,” emphasizes Dr. Mohammed. “Nigeria needs to focus on increasing non-oil exports and attracting foreign direct investment to reduce dependence on borrowing.”
Additionally, controlling government spending and prioritizing investments in growth-generating sectors can help improve the overall economic situation and reduce reliance on external debt.
Nigeria’s debt situation requires close monitoring and proactive measures. By implementing a combination of fiscal discipline, revenue diversification, and strategic investments, the country can navigate this complex challenge and ensure sustainable economic growth
