LAGOS, Nigeria (VOICE OF NAIJA)-Nigeria’s debt servicing costs reached approximately N2.2 billion in the first five months of this year, according to recent data from the Central Bank of Nigeria (CBN).
This amount is nearly half of the $4.8 billion that Fitch Ratings projected for the entire year. Fitch also predicts that Nigeria’s external debt servicing will increase by $400 million to $5.2 billion next year.
Despite government claims of focusing on domestic borrowing, the CBN International Payments Data shows that May saw the highest expenditure on debt financing at $854.36 million.
This figure is approximately 297 percent higher than the amount spent on debt servicing in April and 286.49 percent more than the $221.05 million spent in May 2023.
In comparison, debt servicing costs were $215.20 million in April, $276.16 million in March, $283.22 million in February, and $560.52 million in January.
The total amount spent in the first five months of this year is 96.32 percent higher than the $1.12 billion spent during the same period in 2023.
FBNQuest Research reports that Nigeria’s external debt service payments rose by $1.1 billion to $3.5 billion in 2023, with $1.9 billion allocated to market debt payments and $1.6 billion to non-market debt payments.
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The 2024 budget outlines plans for additional external borrowing of N1.8 trillion and N1.1 trillion from concessional lenders.
Similarly to Fitch Ratings, FBNQuest anticipates an increase in external debt service payments due to the federal government’s plans to raise loans from the commercial debt market this year and the expected rise in borrowings from concessional sources.
Finance Minister Wale Edun recently announced that Nigeria expects to receive $2.25 billion from the World Bank, with half of it expected immediately following the board’s approval.
Speaking during an interview on Channels TV, on June 2, the minister said, “In two weeks, the board of the World Bank will consider a $2.25bn package for Nigeria, of like virtually free or almost grant funding, very low interest. And it is not being given on conditionalities. A large part of it, $1.5bn is what they call Development Policy Financing.
“Essentially, it is in recognition of what has been done to stabilise the Nigerian economy and get it back on the growth path. The funding will come, at least, half of it, will come immediately after that board meeting. That’s what we are looking forward to. It just shows that we know how to use the multilateral development banks to our advantage. We don’t agree with everything they say. We don’t have to agree or they (have to) agree with our homegrown policies for trying to get Nigeria moving again.”
Another source of funding for the federal government this year will be the Eurobond planned for the second half of 2024.
Bloomberg reported that Citibank NA, Goldman Sachs, and JPMorgan Chase & Co have been hired as advisors for the proposed Eurobond issuance.
Meanwhile, CBN data shows that Letters of Credit significantly declined in the first five months of the year compared to the same period in 2023.
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Letters of credit, a payment method used for importing goods, decreased by 63.26 percent to $279 million from $762.03 million in the first five months of 2023.
LCs are crucial for facilitating international trade in Nigeria, providing a secure and reliable payment system that benefits both importers and exporters.
A CSL report attributed the decline to the country’s foreign exchange situation, which had a significant impact on the volume of letters of credit issued.
“The FX crisis, characterised by a shortage of foreign currency, depreciation of the Naira, and stringent foreign exchange controls by the Central Bank of Nigeria has led to several challenges affecting the issuance and utilisation of LCs in the country. The depreciation of the Naira has made it more expensive for importers to secure the foreign currency needed for LCs.
“Fluctuations in the exchange rate increase the financial risk for both importers and banks. The scarcity of foreign currency reserves limits the ability of banks to issue LCs in foreign currencies, and importers face delays and difficulties in obtaining the necessary foreign exchange to fulfil LC obligations,” the report said.
On a positive note, the CBN International Payments Data revealed that total direct remittances reached $841 million in the first five months, marking a 28.55 percent increase compared to $654.51 million in the same period in 2023.