The Federal Government of Nigeria spent a staggering N611.71 billion in March 2025 servicing its first-ever dollar-denominated bond issued within the domestic market, making it the largest single domestic debt service item for the month and highlighting the increasing strain foreign exchange-linked obligations are placing on the nation’s finances.
This was revealed in the Debt Management Office (DMO)’s report on actual domestic debt servicing for the first quarter of 2025. The report shows that the March payment alone accounted for 47.05% of the total N1.3 trillion spent servicing domestic debt that month, and 23.44% of the total N2.61 trillion spent during the entire quarter.
The bond in question was introduced in August 2024 under the $2 billion Domestic FGN USD Bond Programme. It attracted significant interest from local investors, raising over $900 million and becoming the first-ever foreign currency bond issued entirely within Nigeria’s borders.
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Despite its domestic issuance, the instrument is dollar-denominated, meaning both interest and principal repayments are made in U.S. dollars or naira equivalents at prevailing exchange rates. This has become a key point of concern, particularly with the naira trading above N1,500 to the dollar.
The bond was 180% oversubscribed, later listed on the Nigerian Exchange (NGX) and FMDQ Exchange, and won the “West Africa Deal of the Year” award for its innovation and investor reception.
But the March payment paints a less celebratory picture. While the official interest due on March 6 was $44.97 million, converted at an exchange rate of N1,511.80/$, amounting to N67.99 billion, the DMO reported a total of N611.71 billion in debt service costs for the bond that month. The significant discrepancy suggests that the government may have redeemed part of the bond’s principal—possibly N543.72 billion—in addition to the scheduled interest, signaling an unexpected early repayment just seven months after issuance.
FX Risk Deepens Debt Strain
Although praised for providing a domestic alternative to Eurobond issuance and deepening local capital markets, the bond comes with a heavy cost: it introduces significant foreign exchange risk. Unlike traditional naira-denominated instruments, its repayment burden balloons every time the local currency weakens—essentially mirroring the pressure of external debt, even though the funds were raised locally.
By September 30, 2024, the bond had added N1.47 trillion to Nigeria’s domestic debt stock of N69.22 trillion, representing 2.12% of the total. As of March 31, 2025, the outstanding amount declined to N1.41 trillion, now just 1.88% of the N74.89 trillion revised domestic debt stock. This modest reduction masks a far more worrying trend: servicing such instruments under current FX conditions significantly worsens Nigeria’s fiscal stress.
Calls for Caution Over Currency Exposure
The March debt servicing cost for this one bond eclipsed interest payments on virtually all other domestic instruments combined, reigniting debate over Nigeria’s growing exposure to foreign currency liabilities—especially those tied to volatile exchange rates.
The bond was designed to attract dollar-holding institutional investors like pension funds, sovereign wealth funds, and multinationals by offering a tax-free and relatively safe investment while allowing the government to raise foreign exchange without relying on volatile international markets. But with the naira in decline and oil revenues stagnant, that strategy now looks increasingly fragile.
According to debt experts, such instruments may have long-term appeal but require careful calibration against exchange rate movements, inflation, and revenue shortfalls. Servicing a dollar-denominated bond from naira-based revenue, especially in an environment of FX scarcity and monetary tightening, can significantly distort the government’s balance sheet.
Additionally, the dollar bond experiment underscores a bigger dilemma: while Nigeria seeks alternative funding sources, its structural dependence on FX-pegged debt—both external and now domestic—may be undermining its efforts to stabilize public finance.
Analysts warn that even if no new external borrowing is undertaken, dollar-denominated instruments issued locally carry nearly identical fiscal pressures as foreign debt. With Nigeria already facing record debt service-to-revenue ratios and external reserves under pressure, any FX-linked obligation—whether domestic or foreign—should be treated with extreme caution.
Furthermore, the bond’s servicing cost has overshadowed the government’s broader domestic debt servicing strategy for the quarter, which has typically relied on less volatile instruments such as FGN bonds, T-bills, and Sukuk.