Between January and October 2023, approximately 50% of Nigeria’s dollar payments were allocated to the servicing of external debts, highlighting the escalating burden of foreign debt on the nation’s economy.
Data sourced from the Central Bank of Nigeria (CBN) reveals that out of the total outflows amounting to $6.11 billion during this period, a significant sum of $3.07 billion was dedicated to servicing external debt. This sizable allocation signifies a substantial portion of the country’s financial resources and reflects a noteworthy increase compared to the previous year.
The cumulative expenditure on foreign debt servicing over these 10 months amounts to $850.42 million, marking a 38% surge from the $2.22 billion spent in 2022. A closer look at the monthly breakdown of debt service payments reveals a fluctuating yet consistently elevated spending pattern.
The CBN paid $112.35 million on external debt servicing in January; $288.54 million in February; $400.47 million in March; $92.85 million for April; $221.05 million in May; $54.36 million for June; $641.69 million in July; $309.96 million in August; $439.06 million in September and $509.73 million in October.
These figures collectively account for the $3.07 billion spent on foreign debt service and are 38% higher than the $2.22 billion it spent in the corresponding period of 2022, highlighting a persistent strain on Nigeria’s foreign exchange resources.
This financial strain is further compounded by Nigeria’s ongoing challenge of offsetting a $7 billion forex exchange backlog.
Despite the CBN’s commitment to clearing the backlog within two weeks, only about 20% has been paid off after approximately three months. This slow progress in clearing the backlog adds another complexity to Nigeria’s external debt scenario.
Direct remittance gulped $1.91 billion out of the $6.11 billion recorded between January and October 2023. This is about 31% of the foreign payments made within the period.
Also, it is a slight decrease of about 1% from the $1.93 billion recorded in the same period in 2022. The reason for the decline is likely due to the rising cost of sending money to Nigeria due to high bank charges.
Recent reports suggest that Nigerian banks will impose an electronic money transfer levy on foreign currency inflows equivalent to N10,000 and above from January 2024.
This is anticipated to worsen the high cost of remittance, potentially diverting more forex transactions to unofficial markets.
Also, the World Bank recently noted that the forex crisis in Nigeria and other Sub-Saharan African countries has led to a diversion of forex from official to non-official channels.
Letters of credit made up 19% of the dollar payments made within the period under review, gulping $1.14 billion. This is a decrease of about 7% from the $1.23 billion recorded in 2022.
With Nigeria struggling with the forex crisis, there were reports of foreign suppliers rejecting letters of credit from Nigerian businesses. Also, the current forex crisis in the country likely triggered the increase in the timelines for letters of credit in the newly approved service charter by the Governor of the CBN, Yemi Cardoso.
Nigeria spent about 277.64% more servicing its external debt in the third quarter of 2023, according to the latest data from the Debt Management Office (DMO).
The DMO in a statement said that external debt decreased due to the redemption of a $500 million Eurobond and 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 pandemic.
There have been concerns over the country’s rising debt costs amid rising debt over the years. In its 2022 Debt Sustainability Analysis Report, the DMO warned the projected government’s debt service-to-revenue ratio of 73.5% for 2023 was high and a threat to debt sustainability. It noted that the government’s current revenue profile could not support higher levels of borrowing.
In a statement, the World Bank expressed deep concern over the escalating debt service costs that are burdening developing countries worldwide. Indermit Gill, the World Bank’s Chief Economist, and Senior Vice President, emphasized the gravity of the situation, highlighting the potential for a widespread financial crisis if immediate and coordinated actions are not taken.
According to Gill, the combination of record-level debt and soaring interest rates has set many developing nations on a precarious path, one that could lead to economic distress and tough decisions regarding the allocation of resources.
President Bola Tinubu recently said the country could not continue to service its debt with 90% of its revenue. He noted that the country was headed for destruction if that continued.