Nigeria Repays $1.8 Billion in Foreign Loans

The Nigerian government has successfully repaid a total sum of $1.8 billion in foreign loans, including part of the COVID-19 advances obtained to mitigate the pandemic’s impact in 2020. Despite this repayment, Nigeria’s total debt is expected to rise further as recent approvals for additional foreign loans aim to finance the 2024 budget. The nation’s persistent fiscal challenges and the desire to spend beyond earnings capability have been the driving factors behind continuous borrowings.

According to LSintelligence Associates, a focus on hydrocarbon sales continues to hinder economic restructuring, with oil exports still accounting for a significant portion of foreign earnings (approximately 80-90%). The Debt Management Office (DMO) reported a marginal increase of 0.61% in Nigeria’s total public debt, reaching N87.91 trillion in the third quarter of 2023. This substantial rise reflects a notable 99.5% year-on-year increase from the corresponding period in 2022.

The N87.91 trillion public debt includes both domestic and foreign obligations of the federal government, the 36 state governments, and the federal capital territory. Domestic debt constitutes N55.93 trillion, with N31.98 trillion in external debt. The federal government takes the lion’s share of domestic debt, with N43.18 trillion from FGN Bonds.

The recent reduction in external debt to $41.59 billion in September 2023 resulted from a strategic $500 million Eurobond redemption and a $413.86 million repayment to the International Monetary Fund (IMF). This repayment marks the beginning of the principal payment on the $3.4 billion loan obtained from the IMF during the COVID-19 pandemic in 2020.

The DMO’s move to redeem a $500 million Eurobond borrowed in 2013 is seen as a positive development for Nigeria’s Eurobond market, reinforcing investor confidence in the country’s financial stability. The total securities redeemed by Nigeria in the International Capital Market, including this Eurobond redemption, amount to $1.8 billion.

While the gradual increase in Nigeria’s total debt stock, particularly in the external debt component, is observed positively, it underscores the government’s continued reliance on borrowing to address budget deficits and meet financial obligations. However, concerns are raised about potential vulnerabilities in local financial markets due to the concentration of debt within the domestic sphere.

The debt-to-GDP ratio, standing at approximately 42% in the third quarter, surpasses recommended thresholds for emerging economies. This elevated ratio raises apprehensions about the sustainability of the debt burden and its potential impact on future economic growth. The scarcity of funds and revenue sources for the federal government, with a significant portion allocated to debt servicing, further necessitates borrowing to fulfill funding obligations. The economic challenges deepen with the devaluation of the Naira, exacerbating the nation’s economic crisis.