Data from the Central Bank of Nigeria (CBN), indicate that out of the $6.11 billion in total outflows made during this period, a substantial amount of $3.07 billion was directed towards servicing external debt.
This figure represents a hefty slice of the nation’s financial resources and indicates a significant increase from the previous year.
The total spent on foreign debt service in these 10 months is $850.42 million, or 38 per cent higher than the $2.22 billion expended in 2022.
A monthly breakdown of the debt service payments reveals a fluctuating yet consistently high expenditure pattern.
The CBN paid $112.35 million on external debt servicing in January; $288.54 million in February; $400.47 million in March; $92.85 million for April; $221.05 million in May; $54.36 million for June; $641.69 million in July; $309.96 million in August; $439.06 million in September and $509.73 million in October.
These figures collectively account for the $3.07 billion spent on foreign debt service and are 38 per cent higher than the $2.22 billion it spent in the corresponding period of 2022, highlighting a persistent strain on Nigeria’s foreign exchange resources.
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This financial strain is further compounded by Nigeria’s ongoing challenge of offsetting a $7 billion forex exchange backlog.
Despite the CBN’s commitment to clearing the backlog within two weeks, only about 20 per cent has been paid off after approximately three months.
This slow progress in clearing the backlog adds another complexity to Nigeria’s external debt scenario.
Direct remittance gulped $1.91 billion out of the $6.11 billion recorded between January and October 2023. This is about 31 per cent of the foreign payments made within the period.
Also, it is a slight decrease of about 1 per cent from the $1.93 billion recorded in the same period in 2022.
The reason for the decline is likely due to the rising cost of sending money to Nigeria due to high bank charges.
Recent reports suggest that Nigerian banks will impose an electronic money transfer levy on foreign currency inflows equivalent to N10,000 and above from January 2024.
This is anticipated to worsen the high cost of remittance, potentially diverting more forex transactions to unofficial markets.
Also, the World Bank recently noted that the forex crisis in Nigeria and other Sub-Saharan African countries has led to a diversion of forex from official to non-official channels.
Letters of credit made up 19 per cent of the dollar payments made within the period under review, gulping $1.14 billion.
This is a decrease of about 7 per cent from the $1.23 billion recorded in 2022.
A Letter of Credit (LC) is a means of payment used for the importation of visible goods.
It is a written undertaking by a bank (issuing bank) at the request of its customer (applicant), in which the bank obligates itself to pay the exporter (seller/beneficiary) up to a specific amount within a prescribed period based on stated terms and conditions.
With Nigeria struggling with the forex crisis, there were reports of foreign suppliers rejecting letters of credit from Nigerian businesses.
Also, the current forex crisis in the country likely triggered the increase in the timelines for letters of credit in the newly approved service charter by the Governor of the CBN, Yemi Cardoso.
Nigeria spent about 277.64 per cent more servicing its external debt in the third quarter of 2023, according to the latest data from the Debt Management Office (DMO).
The DMO in a statement said that external debt decreased due to the redemption of a $500 million Eurobond and payment of $413.859 million as the first principal repayment of the $3.4 billion loan obtained from the International Monetary Fund (IMF) in 2020 during Covid-19. (Source: nairametrics)
