Nigeria’s External Debt Payments Skyrocket: 277.64% Surge in Three Months Due to Eurobond and IMF Loan Repayments

Nigeria witnessed a staggering increase of 277.64% in external debt servicing during the third quarter of 2023, as revealed by the latest data from the Debt Management Office (DMO). The analysis unveils a spike from $368.26 million (N283.17 billion) in Q2 2023 to $1.39 billion (N1.07 trillion) in Q3 2023, reflecting the financial strain on the nation.

The Debt Management Office utilized an exchange rate of N768.93/$ for the calculation of the naira equivalent of the external debt servicing cost. Notably, the top three contributors to external debt service expenditure in Q3 2023 were Eurobonds ($943,661,250.03), World Bank’s International Development Association (IDA) ($212,038,953.70), and China (Exim Bank of China) ($137,191,263.89).

In a statement released on Wednesday, the DMO explained that the decrease in external debt was attributed to the redemption of a $500 million Eurobond and the 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 the Covid-19 pandemic. However, discrepancies arise as there is no recorded debt service to the IMF in the external debt servicing report for Q3 2023.

Expanding the focus to total debt servicing, including both external and domestic debt, there was a substantial increase of 237.06% in Q3 2023. Approximately N2.86 trillion was allocated to debt servicing during this quarter, surpassing the N849.05 billion spent in Q2 of the same year. The cumulative debt servicing bill for Nigeria between January and September 2023 amounted to N5.20 trillion, encompassing N3.23 trillion in domestic debt servicing and $2.56 billion (N1.97 trillion) in external debt servicing.

A closer examination reveals that domestic debt servicing experienced a significant uptick of 216.76%, soaring from N565.88 billion in Q2 2023 to N1.79 trillion in the subsequent quarter.

The DMO’s data indicates a marginal increase of 0.61% in Nigeria’s total public debt from N87.38 trillion at the end of Q2 2023 to N87.91 trillion as of September 30, 2023. During this period, the domestic debt stock escalated by N1.80 trillion to N50.196 trillion, while the external debt stock saw a decline of $1.57 billion, decreasing from $43.16 billion to $41.59 billion.

Growing concerns persist regarding the escalating debt costs in Nigeria. The Debt Management Office, in its 2022 Debt Sustainability Analysis Report, cautioned against the projected government’s debt service-to-revenue ratio of 73.5% for 2023, deeming it high and a threat to debt sustainability. Both the International Monetary Fund and the World Bank expressed apprehensions, projecting alarming percentages of government revenue earmarked for debt servicing in 2023.

President Bola Tinubu voiced his apprehension, emphasizing that the country could not sustain servicing its debt with 90% of its revenue, warning of potential destructive consequences if the trend persisted.

Despite these challenges, the DMO reiterated the country’s commitment to honoring its debt obligations in a statement released on Wednesday, asserting, “The servicing of these debts, in addition to other debts, are clear demonstrations of the FGN’s commitment to honoring its debt obligations.”

In a recent statement by the World Bank, the impact of high debt service costs on developing countries was emphasized. The Chief Economist and Senior Vice President, Indermit Gill, urged coordinated action by debtor governments, private and official creditors, and multilateral financial institutions to address the situation promptly. Gill warned of the risk of countries facing crises and the difficult choice between servicing public debts and investing in crucial sectors like public health, education, and infrastructure, concluding with a stark caution of the possibility of another lost decade if not addressed swiftly and effectively.