Naira depreciation increases Nigeria’s debts by N34.3bn
The depreciation of Nigeria’s Naira has increased the nation’s external debt service in January by about N34.3 billion.
According to the monthly economic report for January released by the CBN on Friday, Nigeria paid $620 million for external debt service in January.
However, in November Last year, Ripples Nigeria revealed that Nigeria was actually expected to pay $529,920,000 for matured loans.
Using figures published in August by the World Bank Debtor Reporting System, Ripples metrics revealed that a total of $2.15 billion of matured loan is expected to be paid in 2021 to 10 levels of creditors’ type classified under multilateral, bilateral and bonds agreements.
However, the depreciation of the currency from N361 to N381 at the interbank rate meant N34.3 billion more was paid.
The CBN noted in its economic report that the depreciation of the naira exchange rate contributed to the rising debt service payments.
“A continued strengthening of the dollar vis-à-vis the naira would also raise debt service burdens, thereby reducing resources for growth,” the apex bank noted.
Statistics from CBN showed, that as at the time Ripples Nigeria obtained Nigeria’s debt obligation for 2021 from World Bank reporting system, Nigeria’s Naira at Inter-bank Foreign Exchange Market (IFEM), exchanged at a monthly average of N316 to a dollar.
The exchange rate however increased to 381 in August the same rate quoted by CBN in its January 2021 economic report.
In February, Dr Paul Alaje, Senior Economist with SPM Professionals raised concern on Nigeria’s dollar debts at a virtual Annual Forum of Finance Correspondents Association of Nigeria (FICAN).
In his words, “devaluation of Nigeria currency happened last year from ₦306 official figure to ₦379, now, when you study debt management publication carefully, you will see that because of devaluation, Nigeria has added ₦1 trillion to debt for borrowing nothing “
“Looking at the foreign component of Nigeria’s debt and the conversion to Naira, Nigeria devalued and borrowed in dollars that its self will make our debt profile to increase,” he said.
He added that Nigeria will still service this debt at the same dollar rate it borrowed the money because the rate of servicing has not reduced.
Similarly, a recent Bloomberg report revealed that banks are projecting a boost in profits due to a weaker naira in 2021.
According to the report, FCMB Group Plc foreign currency earnings rose more than two-fold to N10 billion ($24.5 million) from N3.5 billion and expect to grow further in 2020 and Investors expect the naira to trade at 425.69 naira per dollar in three months and 440.50 naira per dollar in six months.
While this looks unlikely, the pressure from IMF and World Bank might see the projected exchange rate take effect.
A Goldman Sachs reports that CBN might consider devaluing the currency again in the short term to meet the conditions for international financing.
But Nigeria government has continued to defend that Nigeria’s debt level is sustainable and will continue to look into debt market this year.
Ripples Nigeria exclusively reported that the CBN spent $5.76 billion servicing external debt in 2020.
According to RipplesMetrics report the payment represents a 329.5 percent rise compared to $1.34 billion cumulative total debt service payment recorded in 2019.
In 2018 debt service was $1.47 billion while 2017 CBN spent $444.7 million was spent to service external debts by CBN.
In 2016 debt servicing by CBN stood at $349.6 million and while in 2015 when the present administration came into power, $379.9 million was spent. The figure has so far increased by 1422.2 percent in 2020, the report shows.