How Naira Depreciation Shot Nigeria’s Foreign Debt To N30trn- Report

Naira Devaluation Drives Foreign Debt Increase

Nigeria’s foreign debt has surged to N30 trillion in naira terms due to significant currency depreciation. The Debt Management Office (DMO) revealed that external obligations, although reduced in dollar value, have become far more burdensome in local currency.

The naira’s value dropped from N770.38 to N1,470.19 per dollar between June 2023 and June 2024, resulting in an 89.7% increase in foreign debt when calculated in naira. “While external debt in dollars fell slightly to $42.9 billion, the depreciation of the naira has pushed local valuations to unprecedented levels,” explained a senior DMO official.

Breakdown of Nigeria’s Foreign Debt

Data shows that multilateral lenders remain Nigeria’s largest creditors, contributing 50.41% of the total external debt. The World Bank alone accounts for $16.32 billion, or 38% of the total. The International Monetary Fund (IMF) holds $1.61 billion, with smaller portions owed to other global agencies.

Commercial creditors, particularly through Eurobonds, make up 35.24% of Nigeria’s debt at $15.12 billion. Recently, the Federal Government raised $2.2 billion in Eurobonds to support its economic recovery efforts.

Bilateral loans, mainly from China and France, account for 13.72%, with China’s Exim Bank holding $5.07 billion.

Minister of Finance Defends Borrowing

Wale Edun, Nigeria’s Finance Minister, justified the rising foreign debt as necessary for economic reforms. He stated, “The borrowing is part of our broader recovery plan. It stabilises macroeconomic conditions, adjusts market pricing, and boosts local production.”

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Edun further highlighted the success of Nigeria’s recent Eurobond auction, which raised $2.2 billion despite challenging global conditions. “This demonstrates investor confidence in our economic agenda,” he said.

Debt Servicing Costs Mount

The cost of servicing foreign debt has also risen sharply. In the first nine months of 2024, Nigeria spent $3.58 billion on debt servicing, a 39.77% increase from the $2.56 billion spent in 2023.

The Central Bank of Nigeria attributes this rise to escalating interest rates. The World Bank echoed this concern in its latest report, stating, “Developing nations are spending record amounts on debt servicing, leaving little for critical sectors like health and education.”

The Economic Impact of Rising Foreign Debt

Experts warn that the rising foreign debt in naira terms could exacerbate Nigeria’s fiscal challenges. A Lagos-based economist, Bode Akanji, remarked, “The naira’s depreciation has effectively doubled our foreign debt burden. This puts pressure on government spending and limits investment in critical infrastructure.”

Similarly, the DMO emphasised the need for caution, stating, “While borrowing is necessary, the cost implications of a weak currency must be addressed.”

Future Implications

The Federal Government is expected to increase its external debt to $45.1 billion by the end of 2024 to finance development projects. However, as borrowing continues, the strain on Nigeria’s finances may intensify.

Edun reassured citizens, saying, “We are committed to reducing the debt burden by stabilising the naira and boosting domestic revenue.”

The rising foreign debt highlights the complex interplay between currency devaluation and fiscal policy, leaving Nigeria with tough choices to balance growth and sustainability.