The Federal Government’s penchant for borrowing from the domestic market through bonds issuance, and the fluctuations in the foreign exchange market drove up Nigeria’s total public debt by 5.97 per cent or N8.02 trillion to N142.3 trillion as of September 30, 2024, according to the Debt Management Office (DMO). Experts have consistently cautioned the Nigerian government to be careful with excessive bond issuance, with the International Monetary Fund (IMF) warning about the potential risks.
The government’s decision to issue domestic bonds in recent times has been met with mixed reactions. While some see it as a way to raise much-needed funds, others are concerned that it could lead to an increase in public debt. However,
Nigeria has been battling rising debt profile for which experts have expressed fear that the debt may not be sustainable.
The exchange rate weakened from N1,470.19/$ in June to N1,601.03/$ by the end of September.
According to the DMO, the Federal Government accounted for the bulk of domestic debt, which rose from N66.96 trillion in June to N69.22 trillion by September while the potion owed by states and the Federal Capital Territory (FCT) declined slightly during the period from N4.27 trillion to N4.21 trillion.
Prior to the period under review, Nigeria’s total public debt was N134.3 trillion as of June 30 2024.
Data from the DMO showed that Nigeria’s external debt in dollar terms grew marginally by 0.29 per cent from $42.90 billion in June to $43.03 billion in September.
However, the naira equivalent of external debt surged significantly by 9.22 per cent, rising from N63.07 trillion to N68.89 trillion during the same period.
Domestic debt recorded mixed performance, declining by 5.34 per cent in dollar terms from $48.45 billion in June to $45.87 billion in September. In naira terms, however, domestic debt increased by 3.10 per cent, from N71.22 trillion to N73.43 trillion.
It was observed that Federal Government bonds remained the largest component of domestic debt, increasing by 4.47 per cent to N54.65 trillion in September, up from N52.32 trillion in June. This represents 78.95 per cent of the total domestic debt stock, an increase from 78.13 per cent in the previous quarter.
The issuance of bonds in naira terms accounted for the majority of this growth.
It was also noticed that Nigeria’s first domestic dollar-denominated bond, added N1.47 trillion to the debt stock.
The report also shows that the second-largest domestic debt component, Treasury Bills, declined marginally by 0.66 per cent to N11.73 trillion, from N11.81 trillion in the previous quarter.
This reduction aligns with efforts to moderate short-term debt and mitigate rollover risks.
Promissory notes, used to settle government obligations, grew by 5.80 per cent, increasing from N1.67 trillion in June to N1.77 trillion in September.
While the Federal Government Sukuk, an infrastructure funding instrument, declined by 9.14 per cent to N992.56 billion, down from N1.09 trillion.
The DMO also reports that Savings bonds increased by 16.11 per cent to N64.09 billion, reflecting growing retail investor participation.
It however said green bonds remained unchanged at N15 billion, maintaining their minimal contribution of 0.02 per cwnt to the domestic debt stock. Analysis of Nigeria’s external debt stock of $43.03 billion in September 2024 revealed a largely stable profile, with only minor adjustments in multilateral and bilateral obligations.
Multilateral obligations increased by 0.67 per cent to $21.77 billion, maintaining their dominance at 50.60 per cent of the total external debt. The increase was driven by additional disbursements from institutions like the World Bank, which added $513.06 million to its International Development Association portfolio, now at $16.84 billion.
Bilateral debt decreased slightly by 1.33 per cent, falling from $5.89 billion to $5.81 billion.
The report also shows that loans from China, Nigeria’s largest bilateral lender, declined by $99.98 million, while obligations to France and Germany remained stable.
In the area of commercial loans, primarily Eurobonds, were unchanged at $15.12 billion, representing 35.14 per cent of total external debt.
Nigeria raised $2.2 billion through its Eurobond auction in December 2024. That marked Nigeria’s return to the international capital markets. The funds were raised through two bonds: a 6.5-year $700 million bond at 9.625 per cent and a 10-year $1.5 billion bond at 10.375 per cent. While total subscriptions exceeded $9 billion, only $2.2 billion was allotted. These funds are expected to support the 2024 budget amid revenue shortfalls and mounting public spending preasures.
Experts have raised the alarm over the country’s rising debt which they say may create macroeconomic challenges especially if the debt service burden continues to grow.
The 2015 budget proposal of N49.7 trillion has provision for N13.4 trillion deficit, a figure that has drawn criticism from economists who fear this will add to the country’s debt stock.
Professor Uche Uwaleke, a Professor of Capital Markets and Director of the Institute of Capital Market Studies at the Nasarawa State University Keffi, expressed concern over the financing of the N13.4 trillion deficit in which asset sale/privatization proceeds will contribute a mere N312 billion, while N3.8 trillion represents multilateral/Bilateral project-tied loans.
He said the bulk of the borrowings, about N9.3 trillion, will be largely discretionary and non-project tied. “In order not to compound the already huge debt burden the country is facing, every effort should be made to ensure that all long-term funds sourced from the debt capital market are tied to self-liquidating projects,” he said.