In its latest financial report, the Central Bank of Nigeria (CBN) has disclosed that the federal government expended approximately $2.2 billion on debt servicing during the first five months of 2024.
This significant outlay, gulping approximately 96 percent of the nation’s revenue, underscores the escalating fiscal pressures facing the country.
The CBN’s ‘International Payments Data’ report reveals that May saw the highest expenditure on debt servicing, amounting to $854.36 million. This figure represents the most substantial monthly payment in the past year and marks a 297% increase from April’s $215.20 million. Additionally, the amount spent in May is 286.49% higher than the $221.05 million expended in the same month in 2023.
According to FBNQuest Research, Nigeria’s external debt service payments rose by $1.1 billion to $3.5 billion in 2023, comprising $1.9 billion in market debt payments and $1.6 billion in non-market debt payments. This increase highlights the growing burden of Nigeria’s external obligations.
The monthly breakdown of debt servicing costs is as follows:
- January: $560.52 million
- February: $283.22 million
- March: $276.16 million
- April: $215.20 million
- May: $854.36 million
In total, the $2.2 billion spent from January to May 2024 is about 96.32% higher than the $1.12 billion spent during the same period in 2023.
Decline in Letters of Credit
CBN data also indicated a significant decline in letters of credit (LCs) in the first five months of 2024 compared to the same period in 2023. LCs, a crucial payment method for importing goods, decreased by 63.26% to $279 million from $762.03 million in the same period last year. LCs are vital for facilitating international trade in Nigeria, providing a secure payment method that benefits importers and exporters.
However, on a positive note, the CBN’s International Payments Data showed a substantial increase in total direct remittances, which reached $841 million in the first five months of 2024. This is about 28.55% higher than the $654.51 million recorded in the same period in 2023, reflecting a robust inflow of funds from the Nigerian diaspora.
In response to these fiscal challenges, Nigeria is seeking financial support and implementing strategic measures to stabilize its economy. Finance Minister Wale Edun recently announced that Nigeria is set to receive a $2.25 billion package from the World Bank, expected to be approved soon.
Speaking on June 2 during an interview with Channels TV, Edun stated, “In two weeks, the board of the World Bank will consider a $2.25 billion package for Nigeria, which would be virtually free or almost grant funding, very low interest.”
This funding, which includes $1.5 billion in Development Policy Financing, aims to support Nigeria’s economic stabilization and growth initiatives.
Additionally, the government plans to issue Eurobonds in the second half of 2024, with Citibank NA, Goldman Sachs, and JPMorgan Chase & Co. hired as advisors. This move is expected to raise necessary capital from international markets.
High Debt Servicing Costs Compound Nigeria’s Economic Woes Amid Dwindling Oil Revenue
This significant expenditure on debt obligations is set against a backdrop of declining oil revenues and severe economic challenges, compounding Nigeria’s fiscal woes. The strain on Nigeria’s finances is further exacerbated by a significant shortfall in oil revenue, traditionally a cornerstone of the country’s economy.
As a result, the federal government has increasingly relied on borrowing to bridge the revenue gap, leading to a growing debt burden.
Economists have decried the situation, noting that the high cost of servicing this debt limits the government’s capacity to invest in critical sectors such as infrastructure, healthcare, and education, which are essential for stimulating economic growth.
They stressed that Nigeria’s heavy reliance on borrowing to address its fiscal deficit is not sustainable long-term, pointing out that the high cost of servicing this debt diverts essential funds away from development projects, hindering economic growth.
Muda Yusuf, Director-General of the Lagos Chamber of Commerce and Industry, underscored the broader consequences. He noted that increasing debt servicing costs are a significant issue as they limit investments in crucial sectors and hamper the government’s ability to provide necessary services.
“We should be worried, particularly from the point of view of the capacity to service the debt.
“In 2020, for instance, debt servicing to revenue was nearly 80 percent. In the current budget, the debt service provision is about N3.2tn. This is huge and clearly, the debt profile is clearly unsustainable.
“The debt to GDP argument is something that cannot stand in this type of economy because some major components of the GDP are not revenue-generating,” he said.
He noted the growing decline in productivity as a major contributor to the nation’s economic predicament.
“So, we have a major issue with productivity of many sectors, and that is why what we should be worrying about is how to ensure that the debt situation is sustainable, and we can only do that if we relate a lot more with the capacity to service the debt.
“Currently, our capacity to service debt is very weak. And this is time for a very difficult choice to be made if we want to get out of this situation,” he said.
