In September 2022, the Debt Management Office (DMO) released its report on Nigeria’s total public debt stock. It had risen to ₦‎42.84 trillion ($103.31 billion) at the end of June 2022.

If you do the math, you’d notice that the exchange rate used is the ojoro one — the Central Bank of Nigeria’s (CBN) exchange rate. This stood around ₦‎414 to the dollar at the time. By October 19, 2022, the rate had depreciated to ₦‎436 to the dollar. Don’t even get us started on the black market rate. That’s when the true extent of Nigeria’s debt will leave you in tears.

On October 19, Oluseun Onigbinde, the director of BudgIT, a civic organisation that tracks public expenditure, raised the alarm in a tweet. He said that ₦‎20 trillion of Nigeria’s domestic debt would be spread over 40 years at an “unrealistic” 9% coupon rate, meaning that our debt servicing  would amount to ₦1.8 trillion annually.

If all this sounds like I’m speaking Greek, let me break it down for you.

The debt profile problem

Nigeria’s debt profile can broadly be grouped into two: external and internal (domestic) debts. The external debt can further be broken down into various categories. Multilateral debt, which is the type we owe to the IMF, World Bank and AfDB, bilateral debt, which is the type we owe to foreign countries, especially China, and others like commercial debts and promissory notes.

The ₦20 trillion that Mr Onigbinde was lamenting about is our domestic debt, which is composed of different kinds of bonds and treasury bills, financed mostly by the CBN. Most of it came through Ways and Means advance, which ordinarily is something that’s used when the federal government has a budget deficit, that is, when money the government spends in a given year is more than than the revenue it receives. 

In Nigeria, CBN’s statutes allow it to finance the government’s deficit at a limit of no more than 5% of the previous year’s revenue. But trust the CBN to flout its own laws by financing the deficit by as high as 80% of revenue. In the CBN’s defense, it claims

it’s the Federal Government that “frustrates” it by disregarding the limits it sets.

So while Sinzu and Spending are doing their thing, our debt profile keeps mounting.

Emefiele and Buhari [Image source: Punch]

Is Nigeria’s debt sustainable?

Debt, in itself, is not a bad thing. Global debt for instance surpassed $300 trillion in 2021. Who the world is owing is a question for another day. The real question with debt is whether it’s sustainable. According to the IMF, a country’s debt is considered sustainable if the government is able to meet all its current and future payment obligations without exceptional financial assistance or going into default.

This begs the question, is Nigeria’s debt sustainable? Well, the World Bank and IMF recently said they would reassess Nigeria’s debt sustainability. In the meantime, these are the hard facts.  

Nigeria is struggling with a very high unemployment rate. It’s also experiencing dwindling returns from oil, thanks to mismanagement and organised oil theft. The NLNG, another moneymaker for the economy, recently declared force majeure due to increased flooding. Even our sugar daddy, China, has stopped giving us loans.

When you add inflation, the depreciating naira, debt servicing, and an all-round struggling economy, it’s tough to imagine that we can still keep on accumulating more debt. 

What’s a debt trap?

A debt trap describes a situation where a borrower is forced to take on new loans simply to repay existing ones. It occurs when debt obligations surpass one’s loan repayment capacity. Sound familiar?

Mr Onigbinde’s projection for Nigeria is that Nigeria will borrow an additional ₦10 trillion. Foreign exchange and domestic loans will stand at ₦4 trillion while the CBN prints ₦6 trillion.

By 2027, we would have acquired another ₦24 trillion in CBN debt and we would sell to the markets again, expanding debt servicing. Onigbinde calls it a “disastrous loop”, economists call it a debt trap. We should ask our elected officials many questions before we enter one.



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