Nigeria’s debt servicing costs skyrocketed to $4.65 billion in 2024, marking a 32.9% increase from 2023 and the highest in four years. This alarming rise underscores Nigeria’s growing reliance on borrowing amid a challenging economic landscape. According to data from the Central Bank of Nigeria (CBN), the country’s total public debt stood at ₦134.3 trillion ($91.3 billion) as of June 30, 2024, a 10.35% jump from Q1 2024.
What’s Behind the Rising Debt Servicing Costs?
Economic analysts point to three major factors contributing to the increase:
1. More Borrowing
Nigeria’s debt stock has been expanding, with the government relying on new loans to fund its budget deficit. Recent borrowings include:
A $2.2 billion foreign loan package approved by lawmakers.
$1.7 billion in Eurobonds to boost foreign reserves.
$500 million in Sukuk bonds for infrastructure projects.
A $2.25 billion World Bank loan aimed at stabilizing the economy and enhancing revenue generation.
2. Higher Interest Rates on Foreign Loans
Global monetary tightening has made borrowing more expensive, particularly for emerging economies like Nigeria. The U.S. Federal Reserve and other central banks have raised interest rates, increasing Nigeria’s debt repayment burden on foreign-denominated loans.
3. Exchange Rate Pressures
The naira depreciated by 40.90% in 2024, closing at ₦1,535/$ compared to ₦907.11/$ at the end of 2023. This sharp decline has significantly inflated external debt repayment costs.
Nigeria’s Debt Profile: External vs. Domestic Debt
Total External Debt: ₦56.02 trillion ($42.12 billion)
Total Domestic Debt: ₦65.65 trillion ($49.35 billion)
Nigeria’s external debt has surged due to its increased reliance on foreign loans, while domestic borrowing remains high as the government struggles to bridge its fiscal gaps.
Economic Implications of Rising Debt Servicing
1. Risk of More Borrowing
With mounting debt obligations, Nigeria may be forced to take on even more loans to meet repayment deadlines, leading to a vicious cycle of debt accumulation.
2. Reduced Funds for Development
The high cost of servicing debt reduces the amount of money available for critical sectors like infrastructure, healthcare, and education, slowing economic growth and worsening living standards.
3. Inflationary Pressures
The combination of a weak naira and rising debt costs could fuel inflation, further straining the purchasing power of Nigerian households.
How Can Nigeria Manage Its Debt More Effectively?
1. Improve Revenue Generation
The government must enhance tax collection efficiency, diversify revenue streams, and reduce dependence on oil earnings.
2. Strengthen Currency Stability
Monetary policies aimed at stabilizing the naira-dollar exchange rate will help mitigate external debt servicing costs.
3. Prioritize Productive Borrowing
Borrowing should be directed towards projects that generate long-term economic value, rather than recurrent expenditure.
4. Control Inflation
A proactive approach to inflation management, including reducing deficit spending, will prevent excessive currency depreciation.
Conclusion
Nigeria’s debt servicing costs hitting $4.65 billion in 2024 highlights the urgent need for fiscal discipline. While borrowing is sometimes necessary for economic growth, excessive reliance on debt without a clear repayment strategy poses long-term risks. The government must adopt proactive policies to balance borrowing with sustainable economic development, ensuring financial stability for future generations.