…54.3% of debt service costs incurred in Q3’23

…appetite for Sukuk rises

Nigeria has spent $2.56 billion servicing external debts from January to September 2023, data from the Central Bank of Nigeria (CBN) has shown. This compares to $2.17 billion that was spent in servicing external debt in the comparable period in 2022.

The issue of Nigeria’s huge debt and its effect on government’s ability to executive its functions took to the front burner recently when the Accountant General of the Federation (AGF), Oluwatoyin Madein lamented at an interactive session on the 2024-2026 Medium Term Expenditure Framework and Fiscal Strategy Paper that the rising debt profile of the country was having a huge impact on government financing amid dwindling revenue.

The interactive section was organised by the House of Representatives Committee on Finance.

“The revenue generation and its collection are dwindling in comparison with the expenditure set against the money collected. But, currently, a series of efforts are ongoing to shore up revenue, block the leakages and improve on the revenue that is being brought into the federation.

“Inasmuch as the revenue is in this position, the expenditure too has not also been helping matters, especially with the current economic reality where the prices of things are going up regularly.

“The expenditure too is on the rise and definitely the strategies to increase revenue must be worked upon on a continuous basis to ensure that we are having funds to meet the expectations of Nigerians,” Barristerng.com quoted AGF to have said.

According to the CBN data on international payments, Nigeria spent $112.35 million servicing debt in January 2023 as against $101.29 million as of January 2022. Debt servicing surged by 156.8 percent in February 2023 when the country spent $288.54 million servicing debt compared to $323.86 million spent in the same period in 2022.

With an increase of 38.8 percent, debt servicing further surged to $400.47 million in March 2023 as against $345.36 million the country spent on the same activity in 2022. The first quarter of 2023 recorded a total debt servicing cost to the tune of $801.36 million. This compares to $770.52 million expended during the same period in 2022.

The country spent $92.85 million in April 2023 in contrast to $82.99 million as of April 2022. An upsurge in the debt servicing cost was recorded in May 2023 with debt servicing gulping $221.05 million compared to $178.11 million as of May 2022.

The cost of debt servicing declined by 75.4 percent in June to $54.36 million in contrast to $336.85 million during the same month in 2022. That brought the amount spent on debt servicing to $368.26 million at the end of the second quarter of 2023 compared to $597.95 million at the end of the second quarter of 2022.

Thus far, the highest debt servicing cost was recorded in July 2023, to the tune of $641.70 million as against $426.18 million. Compared to June 2023, debt servicing cost rose by 1,080.5 percent in July 2023. In the previous year, debt servicing increased by 26.5 percent from June 2022 to July 2022.

Nigeria spent $309.96 million servicing debt in August of this year, representing a decline of 51.7 percent when compared to July. In the corresponding period of 2022, the country spent $112.46 million.

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Total debt servicing in September 2023 amounted to $439.06 million as against $262.69 million as of September 2022. In all, the country spent $1.39 billion servicing external debt at the end of the third quarter of 2023. This amounted to 54.3 percent of the total amount spent from January to September servicing external debt by Nigeria.

It should be recalled that during the same period in 2022, Nigeria spent $801.34 million in debt servicing, representing just 36.9 percent of the total debt service costs from first to third quarter of 2022.

Commercial, multilateral debts gulp the most of debt service payments

According to the Debt Management Office (DMO), commercial debts gulped the most debt service payments from January to September. At the end of the first quarter of 2023, Nigeria spent $214.59 million servicing multilateral debts, representing 27 percent of the debt servicing. The country spent $136.47 million on bilateral debts, representing 17 percent, while commercial loans gulped $450.43 million, amounting to 56 percent of the debt servicing.

The money was spent repaying the principal loan, as well as the payment of the interest fee, service fee, deferred interest, deferred service, commitment charges and other charges.

Multilateral debt led the pack during the second quarter of 2023 as a total of $172.27 million was spent servicing it, which amounted to 47 percent of the debt service payments. Bilateral debt got $39.13 million in debt servicing, representing 11 percent of the total costs. Commercial loans attracted $156.84 million which amounted to 43 percent of the total debt service payments during the quarter.

Nigeria’s total external debt stock as of June 2023 stood at $43.16 billion. This comprises multilateral debt of $20.79 billion representing 48.17 percent of the total external debt; bilateral debt of $5.52 billion, representing 12.79 percent; commercial debt of $15.62 billion representing 36.19 percent; promissory notes of $931.70 million representing 2.16 percent, and syndicated loans of $300 million which amounted to 0.70 percent.

Investors’ appetite for Sukuk increases

Sukuk bonds continue to garner investors’ attention as the financial instrument had a very good outing in October 2023.

According to the DMO, Nigeria offered N150 billion Sukuk bond in October this year. The offer was oversubscribed to the tune of N652.827 billion, representing 435 percent oversubscription.

“In response to this strong demand for the Sukuk, the Debt Management Office (DMO) has allocated N350 billion to the diverse investors who subscribed to the Sovereign Sukuk.

“The N350 billion will be used to finance the construction and rehabilitation of roads and bridges across the six geopolitical zones and the Federal Capital Territory,” DMO said through a statement.

Globally, Sukuk offers an alternative investment platform to ethical investors. According to Fitch Ratings, the global Sukuk market expanded by 9.8 percent year on year at the end of September 2023 to $823.4 billion. Malaysia controls the largest market share with 40 percent. It is followed by Saudi Arabia, 28 percent; Indonesia, 13 percent, UAE, 6 percent, and Turkiye, 3 percent.

“About 75% of global outstanding sukuk were in local currency as of end-3Q23. Outstanding Fitch-rated sukuk crossed USD150 billion, up 12.2% yoy, with 79.8% being investment-grade; 4.2% of sukuk issuers had a Positive Outlook and 92.7% had a Stable Outlook,” Fitch Ratings said.