The Federal Government spent a total of $3.58 billion servicing Nigeria’s foreign debt during the first nine months of 2024, according to the latest data from the Central Bank of Nigeria (CBN). This represents a 39.77% increase compared to the $2.56 billion spent in the same period in 2023.
The CBN’s report on international payment statistics revealed that the highest monthly debt servicing payment in 2024 occurred in May, with a payment of $854.37 million. In contrast, the highest monthly expenditure in 2023 was recorded in July, at $641.70 million.
The sharp rise in debt servicing costs highlights the growing pressure of Nigeria’s foreign debt obligations, a trend that continues to strain the nation’s finances.
Breakdown of monthly debt servicing trends
The report provides a detailed breakdown of monthly debt servicing payments. In January 2024, Nigeria’s debt servicing costs surged by 398.89%, reaching $560.52 million compared to $112.35 million in January 2023. February saw a slight decline of 1.84%, with payments dropping from $288.54 million in 2023 to $283.22 million in 2024.
March experienced a 31.04% decrease, with payments falling from $400.47 million in 2023 to $276.17 million in 2024. However, April saw a significant increase of 131.77%, with payments rising to $215.20 million in 2024 from $92.85 million in 2023.
May 2024 saw the highest payment of the year—$854.37 million—reflecting a massive 286.52% increase compared to $221.05 million in May 2023. June experienced a 6.51% decline, with payments falling to $50.82 million from $54.36 million in June 2023.
In July 2024, there was a 15.48% reduction, with debt servicing costs dropping to $542.50 million from $641.70 million in the same month of 2023. August also saw a decrease of 9.69%, with payments falling to $279.95 million from $309.96 million in 2023. However, September 2024 recorded a 17.49% increase, with payments rising to $515.81 million from $439.06 million in September 2023.
Rising exchange rates fuel debt pressure
The increasing payments for foreign debt servicing are a significant concern, especially considering the rising exchange rates, which make the cost of servicing debt in foreign currency even higher in naira terms. This growing financial strain has raised alarms about Nigeria’s long-term debt sustainability.
States’ debt: A growing concern
Meanwhile, an analysis by The Telegraph reported a significant increase in the debt burden of Nigeria’s 36 states. As of June 30, 2024, the total debt of the states reached ₦11.47 trillion, up from ₦10.01 trillion in December 2023—an increase of 14.57%.
External debt for the states and the Federal Capital Territory (FCT) also rose, from $4.61 billion in 2023 to $4.89 billion in June 2024. In naira terms, this increase was even more pronounced due to the devaluation of the naira, which climbed from ₦899.39/$1 in December 2023 to ₦1,470.19/$1 by June 2024.
Domestic debt for the states and the FCT, however, saw a decline, falling from ₦5.86 trillion to ₦4.27 trillion.
Impact of rising foreign debt and currency devaluation
The rise in foreign debt is largely attributed to the devaluation of the naira, which has significantly increased the cost of repaying foreign loans in local currency terms. Lagos State, which remains the most indebted in foreign currency, accounts for 26.9% of the total foreign debt, equivalent to $1.24 billion.
The increase in debt is also compounded by the states’ continued reliance on borrowing to finance their budgets. According to BudgIT’s 2024 State of States report, the debt of Nigeria’s 36 states surged by 38.1% in 2023, from ₦7.25 trillion in 2022 to ₦10.01 trillion in 2023.
This surge in state debt has raised concerns about fiscal sustainability, with many states remaining highly dependent on Federal Accounts Allocation Committee (FAAC) transfers to fund their budgets. The report further noted that 32 states relied on FAAC for at least 55% of their total revenue, while 14 states depended on federal transfers for at least 70% of their revenue.
The growing fiscal pressure
Despite the rise in revenue, which increased by 31.2% from ₦6.6 trillion in 2022 to ₦8.66 trillion in 2023, Nigeria’s states are facing significant challenges due to their over-reliance on federal allocations and borrowing. The liberalization of the exchange rate has exacerbated the pressure on state finances, particularly for those with substantial foreign debt.
As Nigeria grapples with rising debt obligations, both at the federal and state levels, the financial strain on government budgets is likely to continue, raising concerns about the long-term sustainability of public finances.
