Nigeria’s total external debt has increased from $10.32 billion on June 30, 2015, to $40.06 billion on June 30, 2022. According to the Debt Management Office’s (DMO) external debt stock statistics, this represents a 288.18 percent growth in seven years.
According to a breakdown, 36 states had $3.27 billion in foreign debt in 2015, while the federal government had $7.05 billion. By 2022, state external debt had risen to $4.56 billion, while the federal government’s external debt had risen to $35.5 billion.
Loans from international institutions such as the World Bank, the African Development Bank, and the International Monetary Fund were among the obligations. Bilateral loans from China, France, Japan, Germany, and India were also included, as well as commercial sources such as Eurobonds and Diaspora bonds.
Nigeria’s external debt increased as the naira fell in value, increasing the debt payment burden and reducing the country’s capacity to repay debt. According to the International Monetary Fund, the naira’s long-term rate of depreciation has corresponded to a loss of 10.6 percent of its value yearly since 1973.
According to the IMF, throughout the same time period, this rate was 1.5 times greater than the long-term rate of currencies in other emerging markets and developing countries, which was 7.2%, and Sub-Saharan Africa, which was 7%.
The IMF said, “Its exchange rate underwent more persistent depreciation. Nigeria’s long-term rate of currency depreciation (on average 10.6 per cent annually since 1973) was 1.5 times higher than both EMDE (7.2 per cent) and SSA (seven per cent). Given limited availability of long-term data, it is difficult to estimate the exact reasons.”
The Bank of America recently said Nigeria’s local currency unit was set to weaken further next year as its current exchange rate to the dollar was well above fair value.
According to a report by Bloomberg, the bank said, “Three indicators, the widely-used black-market rate, the central bank’s real effective exchange rate, and our own currency fair value analysis shows the naira is 20 per cent overvalued.
“We see scope for it to weaken by an equivalent amount over the next six-nine months, taking it to as high as 520 per USD.”
During an ECOWAS Commission workshop on tax expenditure in Abuja, financial experts recommended Nigeria and other West African countries to shift away from relying on foreign aid to fund regional economic programs.
Over-reliance on financial help and external loans, they argue, may jeopardize the region’s long-term development.
Gbenga Falana, Special Advisor to the Director (Custom Union and Taxation in ECOWAS), emphasized the necessity for West African countries to turn home and finance local initiatives through efficient domestic resource mobilization, despite the fact that the sub-debt region’s profile was increasing.
Reacting, the Managing Director/Chief Executive Officer of Cowry Asset Management Limited, Mr Johnson Chukwu, said that high external debt would impose a huge debt service on the economy.
He said, “This will impose a huge debt service on the economy, particularly at a period when we have low revenue from oil sales. If the revenue from oil sales does not improve, then the government will be struggling to meet that debt service obligation to foreign lenders.”
However, he noted that Nigeria could service its foreign debt at the current level, but a constant increase in debt without a corresponding increase in foreign currency earnings could put the country in a difficult position.
