Nigeria’s foreign debt has significantly increased as a result of the naira’s depreciation.
NewsNowNigeria reported that, the depreciation of the Nigerian naira versus the US dollar has resulted in a N28 trillion increase in Nigeria’s external debt.
Nigeria’s overall debt at the end of the third quarter of 2023 was N87.38 trillion, according to the most recent figures from the Debt Management Office.
Of this amount, financial institution loans, Eurobonds, and syndicated loans totaling N31.98 trillion were owing to foreign businesses.
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Nigeria’s foreign debt is made up of bilateral loans like $4.8 billion from the Exim Bank of China and multilateral loans like $2.8 billion from the International Monetary Fund.
As of September 30, 2023, the total amount of external debt was $41.5 billion using the Central Bank of Nigeria’s official exchange rate of $1 to N768.76.
Due in large part to the naira’s depreciation, particularly in the beginning of 2024, the Central Bank accused currency speculators of exacerbating the local currency’s wild slide.
The value of the naira fell from 891/$ to 1,609/$ between January 1, 2024, and February 29, 2024, signifying an 80.5% decline.
This sharp devaluation suggests that between February 2024 and the figures included in the DMO’s most recent debt computation, Nigeria’s external debt has increased by more than 109%.
Finance Minister Wale Edun said that “Negotiations for a $1.5 billion budget support loan are still on with the World Bank during a recent World Bank/IMF meeting in Marrakech, Morocco.”
The new loan is intended to support development projects, and Nigeria is expected to get its fast release.
Nigeria keeps borrowing money despite experts’ and foreign lenders’ warning advise against relying too heavily on debt for growth.
Nigeria’s debt has presented risks, as noted by the IMF and the World Bank, stressing the need for prudence and financial planning.
Furthermore, the Nigerian Economic Summit Group has issued a warning on the possible debt load on next administrations.
In its Annual National Market Access Country Debt Sustainability Analysis for 2022, which projects debt through 2025, the Debt Management Office set a target debt composition of 70:30 for external and domestic debt.
But by September 2023, Nigeria had already surpassed this estimate by 6.3%, partly because to the large depreciation of the local currency.
The observed devaluation of the naira was anticipated by the DMO’s research to result in a greater difference between the external and local debt criteria.
The president of the Lagos Chamber of Commerce, Gabriel Idahosa, voiced doubt that “Nigeria would reach its debt ratio objectives in light of the sharp depreciation of the naira.”
In order for debt sustainability evaluations to appropriately represent the state of the economy today, he underlined the necessity for updated measurements.
The Federal Government set aside N8.25 trillion in the Appropriations Bill for its debt payment forecasts for 2024, based on an exchange rate assumption of about 800/$, which is far less than the current rate of 1,609/$.
There are worries among the parties concerned since the Federal Government’s peg is lower than what private sector experts and stakeholders deem appropriate.
One may argue that the Federal Government’s goal to set aside about N9 trillion for debt payment is not as feasible now that the naira has depreciated. This situation might only alter if the government exceeds its income projections, which is unlikely given a recent comment by the Director-General of the Budget office of the Federation, Ben Akabueze.
Akabueze blamed the current pattern of deficit budgets on insufficient income production, highlighting the significance of raising revenue to satisfy the nation’s financial requirements.
The president of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, Dele Oye, voiced worries about how the foreign exchange issue is hurting companies and forecasted that the ongoing devaluation of the naira will also have a negative impact on the government’s budget.
Economists have expressed their thoughts on the subject. Nigeria’s consultant to the ECOWAS Common Investment Market, Jonathan Aremu, questioned the government’s methodology for determining the 800/$ exchange rate for the 2024 budget. He thinks that the increased naira inflow into the economy by the Central Bank has greatly contributed to the devaluation of the naira.
Aremu said that “Limiting the naira’s flow through the economy is an essential first step in stopping further depreciation. In order to lessen dependency on imports, he underlined the significance of fostering an environment that is favourable for a productive sector that concentrates on non-oil exports.”
An economist from Olabisi Onabanjo University, Prof. Sheriffdeen Tella, emphasized that “Nigeria’s external debt will rise in naira terms as a result of the naira’s depreciation. In an attempt to lessen the impact of the devaluation, he suggested that the government use its foreign exchange reserves to pay down its debt.”
Tella also brought up the prospect of a supplemental budget to deal with the problems brought on by the existing appropriations bill’s devaluation. He underlined that the government has been compelled by the recent depreciation to consider alternative strategies to manage its finances efficiently.
