FG's Debt Servicing Gulps $2.2bn In Five Months – CBN

The most recent data from the Central Bank of Nigeria shows that Nigeria's debt servicing amounted to approximately N2.2bn in the first five months of this year. 

This figure is close to half of the $4.8bn estimated for the entire year by Fitch Ratings in a report that predicted an increase in Nigeria's external debt servicing to $5.2bn next year. 

Despite the government's emphasis on borrowing from the domestic market, these numbers indicate a significant amount spent on debt financing, with the Federal Government allocating the highest amount in May at $854.36m, making the highest payment in a single month to date.

The amount spent on debt servicing in June is significantly higher at 297% more than April and 286.49% more than May 2023.

In April, the debt servicing cost was $215.20m, $276.16m in March, $283.22m in February, and $560.52m in January. 

This total amount is also 96.32% higher than the debt servicing expenditure by the Federal Government in the same period in 2023, which was $1.12bn.
FBNQuest Research reports that Nigeria's payments for servicing its external debt rose by $1.1bn to reach $3.5bn in 2023, with $1.9bn attributed to market debt payments and $1.6bn to non-market debt payments. 

The Federal Government's 2024 budget includes plans to borrow an additional N1.8tn externally and secure N1.1tn in loans from concessional lenders.

FBN Quest, like Fitch Ratings, predicts an increase in external debt service payments due to the government's intention to raise funds from the commercial debt market and an expected rise in borrowings from concessional sources. 

Meanwhile, the Minister of Finance and Coordinating Minister of the Economy, Wale Edun, has announced that Nigeria will soon receive funds from the World Bank.

In an interview on Channels TV recently, the minister mentioned that the World Bank would consider a $2.25bn package for Nigeria in two weeks, which includes virtually free or almost grant funding with very low interest and no conditionalities. 

He said the funding is a recognition of Nigeria's efforts to stabilize the economy and promote growth. 

The minister also expressed confidence in utilizing multilateral development banks to benefit Nigeria, regardless of differing opinions on policies, noting that the Federal Government plans to raise funds through a Eurobond issuance in the second half of 2024, with Citibank NA, Goldman Sachs, and JPMorgan Chase & Co hired as advisors for the proposed issuance, as reported by Bloomberg.

In the first five months of the year, there was a significant decrease in the use of Letters of Credit for importing goods, as indicated by CBN data. 

The amount of Letters of Credit issued dropped by 63.26% to $279 million from $762.03 million in the same period in 2023. Letters of Credit are an important payment method for international trade in Nigeria, providing a secure and reliable way for both importers and exporters to conduct transactions.

A report from CSL attributed the decline in Letters of Credit to the country's foreign exchange situation, which has had a major impact on the issuance and utilization of LCs. 

The shortage of foreign currency, the depreciation of the Naira, and strict foreign exchange controls by the Central Bank of Nigeria have all contributed to challenges in obtaining and using LCs. 
Importers are facing increased costs due to the depreciation of the Naira, while fluctuations in the exchange rate pose financial risks for both importers and banks. 

Additionally, the scarcity of foreign currency reserves has limited banks' ability to issue LCs in foreign currencies, leading to delays and difficulties for importers in obtaining the necessary foreign exchange for LC obligations.
On a positive note, CBN International Payments Data revealed that total direct remittances reached $841 million in the first five months, making a 28.55% increase from $654.51 million in the same period in 2023.