Nigeria’s public debt hits N142tn as borrowing rises

Nigeria’s total public debt rose to N142.3 trillion as of September 30, 2024, representing an increase of 5.97 per cent (N8.02tn) compared to N134.3tn in June 2024.

The debt, comprising external and domestic obligations, reflects the significant impact of exchange rate depreciation on external borrowings when converted to naira terms.

Data from the Debt Management Office showed that external debt in dollar terms increased marginally by 0.29 per cent, from $42.90bn in June to $43.03bn in September.

However, in naira terms, external debt surged by 9.22 per cent, rising from N63.07tn to N68.89tn within the quarter.

This sharp increase was attributed to the depreciation of the naira, with the exchange rate weakening from N1,470.19/$ in June to N1,601.03/$ by the end of September.

Domestic debt, on the other hand, reduced by 5.34 per cent in dollar terms, falling from $48.45bn in June to $45.87bn in September.

However, domestic debt in naira terms rose by 3.10 per cent, increasing from N71.22tn to N73.43tn during the period.

The Federal Government’s external debt accounted for $38.12bn in September, up from $38.01bn in June, while states and the Federal Capital Territory held $4.91bn in external debt, a slight increase from $4.89bn.

For domestic debt, the Federal Government’s obligations rose from N66.96tn to N69.22tn, while states and the FCT recorded a minor reduction from N4.27tn to N4.21tn.

Overall, Nigeria’s total public debt in dollar terms fell by 2.70 per cent, from $91.35bn in June to $88.89bn in September.

However, the naira-denominated debt burden remained substantial.

The rising debt profile, particularly in naira terms, raises concerns over debt sustainability, especially with the exchange rate volatility driving up the local currency cost of external obligations.

Further analysis by The PUNCH showed that the Federal Government’s domestic debt stock of N69.22tn as of September 30, 2024, was largely driven by increased issuance of Federal Government bonds and a rise in promissory notes, highlighting the government’s reliance on domestic borrowing to meet fiscal obligations.

Analysis of the debt by instruments shows that Federal Government bonds remained the largest component, rising by 4.47 per cent to N54.65tn in September from N52.32tn in June.

This represents 78.95 per cent of the total domestic debt stock, up from 78.13 per cent in the previous quarter.

The issuance of bonds in naira accounted for the majority of the increase, as the dollar-denominated bond was newly introduced to the domestic debt stock at N1.47tn.

The PUNCH earlier reported that Nigeria successfully launched its first-ever domestic dollar-denominated bond, seeing over $900m in subscriptions.

The $500m bond, coordinated by the Africa Finance Corporation, marked a pivotal moment in Nigeria’s economic development and highlights the growing confidence in the country’s capital market.

The five-year bond, which was issued at par with a 9.75 per cent annual coupon, witnessed a 180 per cent subscription.

This domestic bond added N1.47tn to Nigeria’s domestic debt.

Further analysis showed that Nigerian Treasury Bills, the second-largest component, experienced a marginal decline, falling by 0.66 per cent to N11.73tn from N11.81tn in the previous quarter.

The reduction aligns with efforts to moderate short-term debt instruments, likely in response to concerns over rollover risks and rising interest rates.

Promissory notes, issued to settle government obligations such as contractor payments, grew by 5.80 per cent to N1.77tn in September from N1.67tn in June.

This includes a significant increase in foreign-denominated promissory notes, which rose from N1.18tn to N1.19tn, reflecting adjustments due to currency fluctuations.

FGN Sukuk, a key instrument for infrastructure funding, decreased by 9.14 per cent to N992.56bn, down from N1.09tn.

Meanwhile, FGN Savings Bonds increased by 16.11 per cent, rising to N64.09bn from N55.20bn, reflecting higher participation by retail investors.

The Green Bond component remained unchanged at N15bn, maintaining its minimal contribution of 0.02 per cent to the domestic debt stock.

The overall increase in domestic debt highlights the Federal Government’s growing dependence on local markets to finance budget deficits amid constrained foreign exchange reserves and limited external borrowing options.

While the bond market continues to dominate, the expansion in promissory notes and retail-focused savings bonds indicates a broadening of the domestic debt portfolio.

Economic analysts have repeatedly raised concerns about the sustainability of the rising debt levels, particularly as interest payments consume a significant portion of government revenue.

Earlier, the Chief Executive Officer of the Centre for the Promotion of Public Enterprises, Dr Muda Yusuf, warned that Nigeria may end up in a vicious circle, noting the country may end up in a debt trap.

He said, “I think there is a need for us to be very conscious of and watch the rate of growth of our public debt. Because it could create macro-economic challenges especially if the burden of debt service continues to grow.”

Yusuf added that there is a need for the government to reduce the exposure to foreign debts because the number has grown so due to the exchange rate.

The modest decline in short-term instruments like treasury bills could mitigate refinancing risks, but the reliance on long-term bonds may increase the overall cost of debt servicing in the long term.

Analysis of Nigeria’s external debt stock of $43.03bn by the end of September 2024 shows a largely stable external debt profile, with changes driven by minor adjustments in multilateral and bilateral obligations.

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