Nigeria’s external debt has risen by N13.38 trillion due to the weakening naira, according to findings by Findwhosabi. While the total external debt increased by $490 million between the first and second quarters of 2023, its value in naira terms saw a significant surge, based on data from the Debt Management Office (DMO).
The primary reason for this notable difference in naira terms is the devaluation of the naira, which was initiated by the Central Bank of Nigeria (CBN) to unify the country’s foreign exchange rates. On June 14, 2023, the CBN directed Deposit Money Banks to remove the rate cap on the naira at the official Investors and Exporters’ Window of the foreign exchange market, allowing it to freely float against the dollar and other global currencies.
As a result of this policy shift, the naira’s value depreciated significantly. The local currency fell from its previous rate of 471 naira per dollar to 770.38 naira per dollar as of the latest data from the Investors & Exporters FX window.
Following the CBN’s unification policy, the DMO adjusted its exchange rate from N460.35/$ in Q1 2023 to N770.38/$ in Q2 2023. This reflects a 40.24% depreciation in the exchange rate used by the debt office.
The DMO data indicated that Nigeria’s external debt reached $43.16 billion in Q2 2023, up from $42.67 billion in the previous quarter. In naira terms, the debt rose to N33.25 trillion in Q2 2023 from N19.64 trillion in the preceding quarter, marking an increase of N13.61 trillion.
However, the primary reason for this substantial increase is the depreciation of the naira rather than new borrowing. If the same exchange rate from Q1 (N460.35/$) had been applied to Q2, Nigeria’s external debt in naira terms would have been N19.87 trillion. Thus, the weak naira contributed N13.38 trillion to the country’s external debt in Q2 2023.