Nigeria expends $1bn in Q1’24 on surging foreign debt servicing

Business a.m

In the first quarter of 2024, the federal government allocated approximately $1.12 billion towards servicing its foreign debts, drawing attention to the escalating strain that external financial obligations impose on the nation’s economy.

An analysis of data sourced from the international payment segment of the Central Bank of Nigeria’s website indicates a consistent upward trend in debt service payments between January and March, as well as over the past few years.

According to data from the CBN, the federal government’s foreign debt servicing payments have shown a significant increase from the first quarter of 2023 to the first quarter of 2024. In Q1 2023, the debt servicing amounted to $801.36 million, but in Q1 2024, it surged by 39.7 percent to $1.12 billion, indicating a growing burden on the nation’s finances.

A closer examination of the monthly debt service payments reveals a fluctuating yet consistently high expenditure pattern. In January 2024, the government’s debt servicing obligation stood at $560.52 million, which is nearly five times higher than the $112.35 million recorded in January 2023. 

In February 2024, debt servicing payments were somewhat moderated but remained substantial at $283.22 million. While this was lower than January’s massive outflow, it was still a considerable amount compared to February 2023’s debt servicing of $288.54 million.

The trend continued in March 2024, with Nigeria spending $276.17 million on debt servicing. Although this represented a slight decrease from February and a significant decrease from March 2023’s $400.47 billion, it remained a notable expenditure that further burdened the country’s fiscal position.

Analysis of data from the CBN reveals that Nigeria allocated approximately 70 percent of its dollar payments towards servicing external debts in the first quarter of 2024. This represents a substantial increase from the 49 percent recorded in the same period of 2023.

Out of the total outflows amounting to $1.61 billion between January and March 2024, a considerable sum of $1.12 billion was dedicated to external debt servicing.

In light of recent financial developments, Yemi Cardoso, the CBN governor, addressed the one-month dip streak experienced by the country’s foreign exchange reserves. Cardoso clarified that the decreasing reserves were largely attributed to debt repayments and other standard financial obligations, as opposed to efforts aimed at defending the naira.

Meanwhile, the World Bank expressed significant concerns regarding the escalating debt service costs that are affecting developing countries around the globe. Indermit Gill, the World Bank’s chief economist, and senior vice president, highlighted the potential for a widespread financial crisis if immediate and coordinated actions are not taken to address the issue.

Gill also emphasised the gravity of the situation, stating that the combination of record-level debt and rising interest rates has left many developing nations in a precarious position. This, he noted, could lead to economic distress and difficult decisions regarding resource allocation.