The Debt Management Office (DMO) has revealed a staggering increase in the naira value of the federal government’s external debt, soaring by N17.37 trillion within a span of just one year. According to the DMO’s external debt report for the fourth quarter of 2023, the federal government’s external debt surged from N16.703 trillion in December 2022 to N34.073 trillion by December 2023.
This significant spike in external debt is attributed to a notable disparity in the exchange rates used for calculating loans between the two years. In 2022, the DMO utilized an exchange rate of N448.08/$, while for 2023, the rate surged to N899.39/$. The substantial increase in the naira value of external debt is a direct consequence of the Central Bank of Nigeria’s (CBN) decision to unify the foreign exchange market and subsequently revalue the naira in 2023.
The unification of the foreign exchange market, announced by the CBN in June 2023, marked the abolition of the fixed exchange rate system, signaling a transition towards a floated currency. As a result, the naira experienced significant depreciation, leading to the staggering rise in the naira value of the federal government’s external debt.
The implications of this surge in external debt are far-reaching, particularly concerning the federal government’s finances and expenditure. With the increased naira value of external debt, the government will need to secure additional funds in local currency to cover repayment and servicing obligations. This poses a significant challenge, especially amid limited government income and fiscal constraints.
Moreover, the escalation in external debt could divert resources away from critical sectors such as health, education, social services, and infrastructure, channeling funds instead towards debt servicing obligations.
It’s crucial to note that the current naira value of the federal government’s external debt surpasses the figures reported by the DMO for December. According to Nairametrics daily FX monitor, the naira has depreciated further, closing at N1431/$ on the official NAFEM window. This represents a substantial depreciation of N531.61/$, indicating a 59.1% decline in the value of the naira between December 2023 and March 2024.
The alarming surge in external debt underscores the urgent need for prudent fiscal management and strategies to address Nigeria’s growing debt burden amidst volatile exchange rate fluctuations.
