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Naira Depreciation Worsens Nigeria’s foreign Debt

In a concerning revelation, Nigeria’s external debt has surged by N28 trillion due to the rapid devaluation of the Naira against the US Dollar. As reported by Findwhosabi , the country’s total debt reached N87.38 trillion in Q3 2023, with external debt accounting for N31.98 trillion ($41.5 billion).

Devaluation Dilemma: Naira’s Plunge Spurs External Debt Surge

The Central Bank of Nigeria’s official exchange rate of $1 to N768.76, as of September 30, 2023, was the benchmark for calculating external debt in Naira. However, with the Naira’s continued devaluation, reaching 1,609/$ by February 2024, the external debt has skyrocketed by over 109%.

Naira

Foreign Loans Breakdown: A Complex Web of Financial Commitments

The external debt composition includes loans from various entities, such as the International Monetary Fund, International Development Association, African Development Bank, Exim Bank of China, Agence Francaise Development, Eurobonds, and syndicated loans. The total debt now stands at $41.5 billion.

Warning Signals: Experts Sound Alarm on Nigeria’s Rising Debt

Despite warnings from global lenders and economic experts about the perils of extensive borrowing, Nigeria remains committed to raising more funds through loans. Concerns about the country’s debt sustainability and the potential use of 100% of revenue for debt servicing by 2026 have been voiced by the International Monetary Fund.

Economic Impact: Businesses and Budgets Hit Hard

The staggering devaluation of the Naira, falling from 891/$ to 1,609/$ in just two months, is causing turmoil for businesses and government budgets. The Federal Government’s 2024 budget, based on an exchange rate of 800/$, now faces significant challenges, potentially rendering debt-servicing plans unfeasible.

The Road Ahead: Calls for a Holistic Approach

Economic analysts emphasize the need for a comprehensive strategy to stabilize the economy, with suggestions ranging from controlling Naira circulation to prioritizing productive sectors. The ongoing devaluation poses a threat to Nigeria’s competitiveness under the African Continental Free Trade Agreement.

Navigating Challenges: DMO’s Dilemma in Debt Sustainability Analysis

The Debt Management Office’s debt sustainability analysis, based on a 70:30 domestic-external debt composition target, may need reassessment due to the drastic devaluation. Experts urge caution and a realistic approach to debt management.

Government Response: Supplementary Budget Considerations

In response to the economic turbulence, experts anticipate the possibility of a supplementary budget to address the challenges posed by the Naira’s devaluation. The Central Bank’s role in managing the currency’s value remains a critical factor in navigating these complex financial waters.

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