Nigeria’s External Debt Service Cost Increased by 74% YoY to USD1.4bn in Q3 2023
Nigeria’s total external debt service payments increased by 74% y/y to almost USD1.4bn in Q3 ’23, according to data from the Debt Management Office (DMO). In terms of the split, the external debt service consists of USD952m and USD438m in the market and non-market debt, respectively. The debt service burden is not light, given the FGN’s constrained fiscal space, characterised by the prevailing low oil production of around 1.3 million barrels per day (excluding condensates) compared with historical levels of over 1.7 million barrels per day (mb/d), and, at times, surpassing 2mb/d. Additionally, the volatility in the naira exchange rate poses substantial risks to the country’s external debt obligations.
The sharp y/y rise in total debt service costs is due to the redemption of the USD500m Jul ’23 Eurobond, and principal repayments of USD269m to multilateral and bilateral lenders.
It is worth noting that debt service payments tend to peak in Q1 and Q3, aligning with the concentration of FGN bond issues during these quarters.
On a 9M ’23 basis, the FGN’s external debt service payments amounted to almost USD2.7bn or an increase of 22% y/y. A breakdown of the amount shows USD1.6bn and US1.0bn in market and non-market debt payments, respectively.
Highlights from the 2024 budget reveal a 9M ’23 external debt service cost of NGN1.2trn, constituting roughly 21% of the overall debt service cost during the period. The external debt service-to-revenue ratio was c.13.7%.
Excluding principal repayments, the interest and fee payments during Q3 ’23 amounted to USD622m, implying an annualised average interest rate of c. 5.97%, broadly comparable with 6.0% for full year 2022.
The external debt service cost will remain in single digits because concessional loans from multilateral and bilateral lenders comprise around 63% of the total external debt stock.
Looking ahead, an escalation of the external debt service burden in local currency terms, driven by the downward pressure on the naira exchange rate, pose a potential threat to the nation’s fiscal robustness and economic stability.
