Recent findings reveal that Nigeria's debt servicing cost has surged by 55.71% to N1.24tn within a span of three months. Data obtained from the Debt Management Office (DMO) indicates that between October and December 2022, Nigeria spent N406.77bn on domestic debt servicing and $312.27m (N143.74bn) on external debt servicing, resulting in a total of N550.51bn. However, from January to March 2023, the country allocated N874.13bn for domestic debt servicing and $801.36m (N368.87bn) for external debt servicing, amounting to a total of N1.24tn. The exchange rate of $1 to N460.3, as determined by the DMO, was used for external debt servicing calculations.
The International Monetary Fund (IMF) recently stated that the Nigerian government projected to allocate 82% of its revenue to interest payments in 2023. The IMF further highlighted that external debt, including that of the private sector, is expected to reach $121.6bn, while external reserves are anticipated to rise to $37.5bn. These projections were included in a table of forecasts released in the 'IMF Executive Board Concludes 2022 Article IV Consultation with Nigeria Summary.'
The projections indicate an improvement in the proportion of government revenue dedicated to interest payments, with interest payment declining from 96.3% in 2022 to 82% in 2023. In 2020 and 2021, interest payment accounted for 86.1% and 87.8% of the Federal Government's revenue, respectively, according to the IMF report.
The Director-General of the DMO emphasized the importance of debt sustainability, stating that high debt levels result in heavy debt service, which hampers investment in infrastructure and key sectors of the economy. Debt sustainability, as defined by the DMO, refers to the ability to service present and future obligations while maintaining the capacity to finance policy objectives without resorting to excessive adjustments, arrears accumulation, or debt restructuring, which could jeopardize economic stability.
A report by the Nigerian Economic Summit Group and the Open Society Initiative for West Africa highlights that Nigeria, along with 10 other Economic Community of West African States countries, is currently experiencing debt distress based on debt sustainability analysis. The 10 other countries are Benin, Burkina Faso, Cabo Verde, the Gambia, Ghana, Guinea Bissau, Liberia, Niger, Senegal, and Togo.
The World Bank recently cautioned that Nigeria's debt, although currently considered sustainable, remains vulnerable and costly. The Washington-based global financial institution also noted that the country's debt is at risk of becoming unsustainable in the event of macro-fiscal shocks. Dr. Muda Yusuf, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise, highlighted the diverse economic vulnerabilities faced by the Nigerian economy, including rising public debt and debt service burden.