Devaluation pushes Nigeria’s debt to N89.2trn

The devaluation of the naira has increased Nigeria’s debt profile by N20.6trn trillion in five months, Daily Trust can report.

A data analysis by Daily Trust indicates that the new borrowing plans by the federal government will see the total debt level hit N89.2 trillion before the end of the year.

If shared to Nigeria’s 213 million people, each citizen will be owing N418,779 to the outside world.

The country’s total debt, both domestic and external, stood at $113.4 billion or N87.4 trillion as of June 30, according to a data sourced from the website of the Debt Management Office (DMO).

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The amount is three times the size of the country’s debt in 2005 when the Paris Club forgave $18bn of that amount.

The Central Bank of Nigeria’s official exchange rate of US$1 to N770.38 as of June 30 was used in converting the external debt to naira by the DMO.

The domestic debt includes the N22.7 trillion Ways and Means Advances at the CBN for which the approval of the National Assembly (NASS) to securitize it was received in May 2023.

The Minister of Finance and Coordinating Minister for the Economy, Wale Edun, had, last month, at the World Bank/International Monetary Fund (IMF) annual meetings in Marrakech, Morroco, announced a plan by the government to obtain $1.5 billion in budget support from the World Bank.

This would, if granted, push the country’s debt stock to $114.9bn or N89.2trn, using the official exchange rate of N776.4/dollar.

This excludes the new plan to borrow $7.8bn and €100m which the president on Wednesday requested the Senate to approve as part of the 2022 – 2024

A ‘what if’ analysis of the debt profile indicates that if the exchange rate had remained at N461 to $1, according to the Nigerian Exchange Rate Archive by the CBN on May 30,  Nigeria’s debt stock would have been only N57.6 trillion.

Following the devaluation of the portion of the debt owed to external creditors which is denominated in United States dollars,  the total debt stock increased by N20.6 trillion as a result of the depreciation of about N315 per dollar in the Nigerian Autonomous Foreign Exchange Market  (NAFEM) window from May 30th to date.

Analysis of debt

As of June, Nigeria’s external debt stood at $43.1bn; and domestic debt, $70.3 bn.

A total of $20.7bn is owed to multi-lateral organisations; $5.5bn is bilateral; $15.6bn is commercial (Euro bonds); $931m is a promissory note (non-interest notes issued to settle arrears of federal contractors) and $300m, syndicated loans.

The federal government’s portion of the external debt of $43.1bn is $38.8bn, accounting for 90 percent of the debt; while the 36 states and the FCT account for $4.3bn accounting for 10 percent of the debt stock.

The most indebted state, from the breakdown of the $4.3bn debt stock, is Lagos with $1.2bn followed by Kaduna ($569m), Edo ($258m), Bauchi ($170m) and Cross River ($153m).

The least indebted states in the index are Borno ($18m), Taraba and Yobe with $21m each, Jigawa ($26m), Benue ($29m) and Plateau ($31m).

New debt stock a threat-DMO

The Debt Management Office (DMO), in its recent report, titled, ‘Market Access Country-Debt Sustainability Analysis (MAC-DSA)’ for 2022,  said  Nigeria’s debt service-to-revenue ratio in 2023 stood at 73.5 percent, describing it as unsustainable and a threat.

The MAC-DSA is a template used to analyse debt levels to determine future debt sustainability.

The DMO said the results of last year’s MAC-DSA showed that the total public debt-to-GDP ratio was projected to jump to 37.1 percent in 2023, relative to 23.4 percent as of September 2022.

Also in a recent report, KPMG said Nigeria’s debt service to revenue ratio might exceed 100 percent in 2023.

In its macroeconomic snapshot, the professional services firm raised concerns over Nigeria’s risk of sliding into critical debt servicing problems unless urgent actions were explored to significantly raise revenue. In 2022, Nigeria’s debt service-to-revenue ratio was 80.6 percent — a figure far above World Bank’s suggested 22.5 percent for low-income countries like Nigeria.

‘With FGN revenue to GDP ratio of 4.49% as of December 2022, Nigeria’s debt service to revenue ratio may surpass 100% in 2023, which will limit the fiscal space and the government’s ability to pay for its operations and functions, unless urgent measures are taken to build revenue,” KPMG said.

It advised the government to establish well-thought-out guidelines and frameworks for borrowing, focusing on sustainable debt management and giving investments that produce long-term economic returns top priority.

Meanwhile, last Thursday, the CBN began clearing the backlog of foreign exchange obligations estimated at about $7bn.

This intervention had seen the naira appreciate at the parallel on Friday evening as the dollar exchanged for below N950 from the N1,150 it was earlier in the morning same day.

What govt should do – Experts

Managing Director, Qeeva Advisory Limited, Matthew Ogagavworia, urged the government to reduce wastages and cut cost of governance.

He said: “The government is focusing on cosmetics solutions. If a man owes so much debt and you want to come out of the debt, it is to say, what are the costs and expenses we can cut, but this government has taken worse steps.

“The level of waste at the federal level still stands. The level of profligacy that characterized the previous governed has not changed. The level of grand larceny is still taking place in the public sector in terms of procurement to change competitive bidding that will help to drive cost has not happened. Government still does capital projects where we do not have hard core data on their financial viability.

“The government effort is trying to dress a cancerous wound with a plaster, it will not solve the problem, the government must look at what will drive the private sector and bring efficiency to the public sector.”

An economist and former head, Investors Relation at UBA Plc,  Abiola Rasaq, said: “The government is seeking to stem the weakness of the Naira by providing support to the supply side of the market pending manifestation of the initiatives being adopted to bolster foreign currency inflows and overall balance of trade and payments.

“Hopefully, the CBN puts measures in place to ensure that the supply is not mopped up by speculators and this is where banks need to collaborate with the CBN in ensuring effective monitoring of the market.

“All things being equal, clearing the backlogs of FX demand should moderate the demand pressure to establish a new equilibrium price for the Naira once the pent-up demand is cleared and the market reflects spot demand-supply dynamics.”