Analysts Worry Over Nigeria’s Rising Debts, Servicing Costs

Analysts and economic watchers have expressed concerns about Nigeria’s rising debts and the cost of servicing them.

The Debt Management Office in June revealed that Nigeria’s total public debt had reached N121.67tn, increasing by N24.33tn or 24.99 per cent within three months.

The report read, “Nigeria’s total public debt stood at N121.67tn ($91.46bn) as of March 31, 2024. The comparative figure for December 31, 2023, was N97.34tn ($108.23bn). Total domestic debt was N65.65tn ($46.29bn) while total external debt was N56.02tn ($42.12bn).”

Providing clarification about the increase in the public debt, DMO said, “The increase in naira terms of N24.33tn is being misinterpreted as new borrowing. The amount represents new borrowing of N2.81tn as part of the new domestic borrowing of N6.06tn provided in the 2024 Appropriation Act, new domestic borrowing of N4.90tn as part of the securitisation of the N7.3tn Ways and Means Advances approved by the National Assembly, as well as, the depreciation in the official naira exchange rate from USD/899.39 in Q4, 2023 to USD/N1,330.26 in Q1, 2024.”

Also, debt service costs, amounted to $1.12bn by the end of the first quarter of 2024 driven by rising interest rates and the weakening of the local currency against the dollar.

An analysis by Cowry Asset Management Limited indicated that debt service costs for multilateral loans constituted 57 per cent ($634.3m) of the total, followed by bilateral loans and commercial loans at 18 per cent ($197.4m) and 26 per cent ($288.2m), respectively.

“Furthermore, Nigeria’s total debt service payment to the International Monetary Fund is $409.4m, representing 37 per cent of the total external debt service for the first quarter of 2024.

“Eurobond repayments account for another significant portion, 25 per cent of the total external debt cost, equating to $282.6m. Payments to the Export and Import Bank of China and the International Development Association account for 16 per cent ($180.6m) and 18 per cent ($196.1m), respectively,” the analysts noted.

Data from the DMO showed that domestic debt service costs amounted to N989bn during the review period, largely driven by the escalating debt stock, which reached N61.6tn.

Interest payments on federal bonds rose to N797bn, accounting for more than 80 per cent of the total domestic debt service cost.

Also, payments on Nigerian Treasury Bills, the second most significant debt service component, increased to N97bn during the first quarter of 2024.

Additionally, the third most significant component of debt service was the principal repayments on the Federal Government’s promissory notes, which amounted to N87bn.

The increase was a result of the higher interest rate environment during the period, reflecting the Central Bank of Nigeria’s monetary tightening measures.

Analysts at Cowry Research foresee no immediate relief for Nigeria’s debt levels and debt service costs.

“Financing costs are expected to continue consuming a larger portion of the Federal Government’s revenues, while the local currency remains weak against the dollar and the interest rate environment remains tight, reflecting the Central Bank’s monetary tightening measures.

“Given the government’s activities in the domestic capital market so far in 2024, it is anticipated that approximately N3tn will be raised from subsequent FGN Bond issuances. This is part of an effort to meet its funding target of N6.06tn in domestic borrowing and N1.77tn in foreign borrowings, as outlined in the N28.77tn 2024 budget,” they said.

Meanwhile, the Chief Executive Officer of The CFG Advisory, Tilewa Adebajo, has suggested that Nigeria needed to commence debt negotiation talks with its creditors.

Speaking at the June 2024 edition of the Finance Correspondents Association of Nigeria bi-monthly forum in Lagos in the past week, Adebajo opined that Nigeria’s debt was becoming unsustainable.

Adebajo noted that the country’s debt servicing now exceeded recurrent and capital expenditures and was coming at a time when the country’s Foreign Direct Investment was under $1bn, which put the country in a position where it used the majority of its revenue to service debt.

He stated, “Nigeria’s debt levels are now clearly unsustainable. Add to this $10bn from the 2024 budget deficit, and the question begs: is Nigeria heading for the default direction of Ghana, Zambia, and Ethiopia? The discussion on restructuring both domestic and external debt must commence alongside the ongoing economic reforms and revenue drive to avoid Paris and London Club imposition.”

Meanwhile, last week, DMO offered N450bn in the bond primary market auction across three maturities (re-openings), April 2029, February 2031 and May 2033.

The total allotment from the auction was NGN297.01bn, with the majority of it being from the May 2033 bond.

At the T-Bills primary market auction, the CBN offered a total of N228.71bn compared to N44.23bn in the previous auction, which attracted a subscription of N773.98bn against NGN407.76bn in the previous auction.

A total of N284.26bn was allotted instead of NGN55.23bn in the previous auction at stop rates of 16.30 per cent, 17.44 per cent and 20.68 per cent across the 91-day, 182-day and 364-day maturities respectively.

In the secondary market, sentiments were mixed, as the average treasury bill yields increased to 21.70 per cent from 21.26 per cent recorded in the previous week, while the average bond yield declined marginally by 0.2 per cent week-on-week to 18.75 per cent.