Nigeria’s Debt Service Payments Significantly Decrease Amid Fiscal Reforms
Nigeria’s debt service payments fell from $540 million in January to $276 million in February 2025, reflecting efforts to restructure debt and stabilize finances. Concurrently, Letters of Credit increased significantly, indicating a recovery in trade. The government continues to engage with global lenders to manage the growing debt burden amid concerns over fiscal sustainability and rising total debt stock.
In February 2025, Nigeria’s total debt service payments notably declined from $540 million in January 2025 to $276 million. This downturn, as reported by the Central Bank of Nigeria (CBN), is a result of ongoing federal efforts to restructure its debt, improve dollar liquidity, and alleviate pressure on the foreign exchange market. The published figures underscore the increasing strain that debt obligations are imposing on Nigeria’s external reserves and fiscal sustainability.
Simultaneously, there was a substantial increase in the issuance of Letters of Credit (LCs), marking a rise to $95.6 million in February 2025 from $64.6 million in January 2025, reflecting a 48% surge. This upturn indicates heightened financing of trade transactions and signals a recovery in import-related activities, which has adapted to the fluctuating naira exchange rate and government stabilization efforts.
President Bola Tinubu revealed that during the first 17 months of his administration, the revenue-to-debt service ratio improved from 97% to 65%. The federal government continues to engage with global lenders and investors to alleviate Nigeria’s burgeoning debt burden. The CBN’s recent monetary policies aim to stabilize the naira while effectively managing external obligations.
The Debt Management Office (DMO) reported a 69% increase in Nigeria’s debt servicing payments during the first half of 2024, reaching N6.04 trillion, as opposed to N3.58 trillion in the same timeframe in 2023. This unprecedented rise is mainly attributed to naira devaluation affecting foreign debt repayments and signifies the mounting financial strain on the Federal Government.
The World Bank has voiced significant concern regarding the escalating debt service costs impacting developing nations. Indermit Gill, the Chief Economist and Senior Vice President of the World Bank, warning that without urgent coordinated actions, a widespread financial crisis could ensue. Experts suggest that a mix of increased oil revenues, enhanced tax collection, and strategic debt restructuring might be essential for maintaining lower debt service payments in the immediate future. Nonetheless, challenges remain, particularly concerning Nigeria’s rising total debt stock and the imperative for stronger fiscal discipline to mitigate excessive borrowing.
In conclusion, Nigeria has experienced a significant decrease in debt service payments as of February 2025, reflecting ongoing governmental measures to address fiscal challenges. Concurrently, the surge in Letters of Credit signals a rebound in trade activities, highlighting shifts within the economic landscape. Continuous efforts to engage with international lenders and improve fiscal metrics are critical for navigating future debt sustainability. Despite these positive developments, concerns regarding rising debt levels and fiscal discipline remain pertinent.
Original Source: nairametrics.com
