Market News

Story by Bamidele Ogunwusi

LAGOS – Nigeria’s total external debt stock continues to rise, as indicated by the most recent data from the Debt Management Office (DMO) which reported a rise of $125.5 million q/q and $1.4 billion year-on-year (y/y) to $43.0 billion in Q3 ’24, according to analysts at FBNQuest.

Analysts at Price Waterhouse­ Coopers (PwC) also said Nige­ria’s external debt burden is ex­pected to increase significantly if the naira continues to depreciate as the slide of the local currency against the U.S. dollar is likely to exacerbate the cost of servicing external debt, adding pressure to the country’s fiscal position and threatening long-term economic stability.

According to FBNQuest, in Naira terms, the sequential in­crease in the country’s stock of ex­ternal debt was more significant, with an addition of N5.8 trillion to N68.9 trillion.

When measured on a y/y ba­sis, the absolute increase in the nation’s total external debt stock was approximately N36.9 trillion.

In a note by analysts at FB­NQuest on Monday, they said, “The sharp increase in the naira conversion of Nigeria’s external debt payment can be attributed to the depreciation of the naira. In standardised terms, total external debt is roughly equivalent to 25.5 percent of our forecast 2024 GDP.”

For context, the average ex­change rate used by the DMO to compute the external debt burden rose to N1,601.03/$ in Q3 2024 from N1,470.19/$ in Q2 2024.

To highlight the impact of the naira volatility, the total external debt has now risen to 48 percent of the overall public debt from the 36 per cent share recorded in the year-earlier period.

Consequently, the share of external debt to total public debt at 48 percent has exceeded the DMO’s threshold of 40 percent as indicated in agency’s 2020-2023 Debt Management Strategy pa­per.

The total external debt in­cludes borrowings from the Fed­eral Government as well as those of the 36 state governments and the FCT, for which the Federal Government typically provides sovereign guarantees.

The marginal q/q rise in external debt borrowing is pri­marily driven by an increase of $145.1 million in debt obligations to multilateral lenders to about $21.8 billion.

Another contributor to the increase in external debt q/q is a fresh debt of $59.0 million owed to Deutsche Bank AG.

However, these increases were partially offset by a smaller reduc­tion of -$78.6 million in debt owed to bilateral lenders, specifically to Exim Bank of China.

“Looking ahead, we anticipate an upward trend in the nation’s external debt stock because of the country’s successful return to the Eurobond market in Q4 ’24, which raised $2.2 billion.

Additionally, the FG plans to fund part of its N13.1 trillion 2025 fiscal deficit via new foreign borrowings of N1.8 trillion, and multilateral and bilateral loans of approximately N3.6 trillion.

Significantly, with a domestic funding target of N7.4 trillion targeted to plug the 2025 budget deficit, the DMO conducted its first monthly primary market auction in 2025 last week as the agency offered N450 billion worth of FGN papers to investors, split across three papers; April 2029 – N100 billion, February 2031 – N150 billion and January 2035 paper – N200 billion.

The amount, according to an­alysts at FBNQuest, it sought to raise at this auction was higher than the N360 billion offered at its auction held in the year-earli­er period, underscoring the gov­ernment’s increased borrowing needs this year. The total sales figure amounted to N606.5 billion, implying a sales-to-offer ratio of 1.35x.

The subscription level, an in­dicator of investor participation, stood at N606.5 billion, resulting in a bid-to-offer ratio of 1.49x. The robust investor appetite for government debt instruments is primarily driven by elevated yields resulting from the CBN’s tight monetary stance.

To put into perspective, mar­ginal rates for the reopened Feb­ruary 2031 and February 2034 instruments settled at 21.79 per­cent and 22.50 percent, respective­ly, higher than the rates of 21.14 percent and 22.00 per cent it sold for in the previous auction, while the stop rate for the newly opened January 2025 paper closed at 22.60 percent.

The DMO raised around N5.1 trillion in 2024 through its regu­lar monthly auctions, helping to bridge the 2024 domestic funding need of about N6.1 trillion envis­aged in the 2024 budget document.

Given the challenges with raising revenue collections and the relatively tight external finan­cial conditions in recent years, the domestic debt market has been the reliable source of funding op­tions to address persistent budget shortfalls.

Looking ahead, analysts at FBNQuest said the DMO is ex­pected to maintain an aggressive borrowing plan this year due to its domestic funding target of N7.4 trillion in a bid to plug the 2025 budget deficit.

“That said, we expect yields to remain elevated in the near to medium term, reflecting the prevailing high-interest environ­ment. As a result, we anticipate sustained significant participa­tion of both domestic and foreign investors in upcoming auctions,” they concluded.

In the report by PwC, the oversubscription of Nigeria’s $2.2 billion Eurobond in 2024, which saw a peak order book of over $9 billion, signaled investors’ confi­dence but also adds to the nation’s growing debt stock.

PwC cautions that relying heavily on debt instruments without corresponding reve­nue-generating investments risks crowding out private sector investment and worsening debt sustainability.

Data from the report shows that Nigeria’s external debt rose by 89.7 percent to N63.1 trillion in dollar terms by the second quar­ter of 2024, compared to N54.31 trillion in Q2 2023. In naira terms, external debt increased by 31.6 per cent to N71.2 trillion, driven by increased subscriptions to Federal Government bonds and a sharp 47 percent depreciation of the Naira, from N770.38/$ in 2023 to N1,470.19/$ in 2024.

PwC predicts that Nigeria’s fis­cal and exchange rate dynamics will shape its total debt burden in 2025. However, the report warns that the country may struggle to attract significant foreign invest­ments if negative real returns persist.