Still on Nigeria's Rising Debt Servicing Cost; Spent N2.49trn in 9M 2021


Friday, December 17, 2021 / 12:40 AM / by CSL Research / Header Image Credit: Ecographics


According to news reports and based on data from Debt Management Office, Nigeria spent N2.49tn on debt servicing payments in the first nine months of 2021. The quarterly breakdown showed that between January and March 2021, Nigeria spent a total of N1.02tn while from April to June 2021, the country spent a total of N445.53bn and from July to September 2021, a total of N1.02tn was spent.

N410.83/US$ was the exchange rate used for the external debt servicing conversion. The Federal Government bonds had the largest part of debt servicing payments. Despite the increasing cost of debt servicing, the World Bank noted that Nigeria and some other countries refused to participate in a temporary suspension of debt-service payments due to concerns about future access to debt and credit-rating downgrades. The World Bank noted that the country could save about US$324.7m between January and December 2021 through the debt service suspension initiative.


Nigeria's total public debt came to N38.0tn at the end of September 2021, with external debt making up 40.98% and domestic debt making up 59.02%. The increase of N2.5tn, when compared with the corresponding figure of N35.5 trillion at the end of Q2 2021, was largely accounted for by the US$4bn Eurobonds issued by the Government in September 2021.

Despite the increasing debt stock and debt service payments, the House of Representatives, on Tuesday, approved external borrowings totalling US$5.8bn and a grant of $10m for the Federal Government as part of the proposed 2018-2020 External Borrowing Plan.

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The significantly higher recurrent component of the budget continues to drag the country's economic growth, resulting in poor infrastructural development. Spending more on capital projects can promote industrialization, improve local purchasing power, and help the federal government's diversification drive.

Nigeria continues to face issues of poor revenue generation and a lack of will to efficiently manage its expenditure. No significant cuts have been made to its overheads and statutory spending has continued to rise. The growing debt stock with little to show for it in terms of capital expenditure remains a major concern.


While we note that the widening debt profile amidst; (1) vulnerability of the economy to external shocks; (2) government's inability to effectively diversify its revenue base; and (3) the frail economic recovery, could perhaps raise concerns over fiscal sustainability. The relatively low debt to GDP ratio of 35% which remains significantly below the Sub-Saharan Africa level of 58% and below the 40% limit set by the Debt Management Office, gives some comfort.

We also see a moderate risk of debt distress, mainly due to the moderate stock of foreign currency-denominated debt (albeit rising fast), which masks the impact of exchange rate shock. That said, the government's interest payments continue to absorb a large share of federal government revenues, making the otherwise low debt-to-GDP ratio highly vulnerable to shocks. The total debt service to revenue ratio was estimated at c.73% in October.

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