Nigeria spent as much as $3.58 billion to service itsexternal debtin the first nine months of 2024 despite a series of reforms implemented by the government that were supposed to raise revenue and control borrowings.

The surge in the debt servicing represents a 39.77 percent increase from the $2.56 billion spent during the same period in 2023, according to data from the Central Bank of Nigeria on international payment statistics.

Africa’s most populous nation embarked on some reforms last year that were geared towards reducing government’s spending on costly subsidies and unifying the foreign exchange market so the naira can be determined by fundamentals.

For Nigeria, a large debt servicing signals that a substantial portion of its budget is dedicated to managing debt rather than funding other crucial areas like infrastructure, healthcare, and education.

High debt servicing costs can limit the government’s flexibility to invest in development projects, potentially slowing economic growth

If these costs keep rising, Nigeria may need to borrow even more to cover both its debt obligations and its regular expenses, which could worsen the country’s debt position and lead to more financial strain.

Data from the CBN’s international payment statistics revealed that the highest monthly debt servicing payment in 2024 occurred in May, amounting to $854.37 million.

The global credit ratings agency, Fitch, recently projected Nigeria’s external debt servicing will rise to $5.2bn next year.

This is despite the current administration’s insistence on focusing more on domestic borrowings from the capital market.

It also estimated that approximately 30 percent of Nigeria’s external reserves are constituted by foreign exchange bank swaps.

Nigeria’s foreign debt surged to $42.9 billion in the second quarter of 2024, up from $42.1 billion in the first three months of the year amid naira volatility, according to the latest report by the Debt Management Office (DMO).

But the nation’s stock of external debt was even more pronounced, expanding by 13 percent quarter-on-quarter and 90 percent year-on-year to N68 trillion, primarily reflecting the depreciation of the naira.

“The share of external debt obligations on the nation’s total debt stock has risen from 38% in Q2 ’23 to about 47% in Q2 ’24, underscoring the adverse impact of the naira devaluation on the country’s dollar-denominated debt,” said analysts at FBNQuest Capital Research in a note on Thursday.

“The marginal q/q rise in external debt borrowing is primarily due to a 4% q/q (USD799m) increase in debt owed to multilateral lenders to about USD21.6bn,” the analysts explained.

To put in more context, Nigeria’s total external debt stock is equivalent to 27.4 percent of 2023 gross domestic product (GDP), highlighting the chunk of debt the country owes abroad.

The Federal Government of Nigeria (FGN) is responsible for approximately 89 percent of the country’s total external debt. The balance of 11 percent comprises debt owed by state governments to multilateral and bilateral lenders.

“We anticipate a further rise in the nation’s external debt burden, evidenced by the series of loans worth USD3.8bn approved by the World Bank, coupled with the negative impact of ongoing naira volatility on external debt stock,” analysts at FBNQuest Capital Research said. (BusinessDay)