Nigeria’s debt service payments fell to $276 million in February 2025 from $540 million in January, reflecting government restructuring efforts. Simultaneously, Letters of Credit increased significantly, suggesting a recovery in trade activity. Despite improvements in the revenue-to-debt service ratio, rising overall debt burdens remain a concern for fiscal sustainability.
In February 2025, Nigeria’s debt service payments decreased significantly to $276 million from $540 million in January, according to the Central Bank of Nigeria (CBN). This decrease comes as part of ongoing efforts by the federal government to restructure its debt portfolio and improve dollar liquidity, thereby alleviating pressure on the foreign exchange market. The CBN’s data underscores the growing strain of debt obligations on Nigeria’s external reserves and overall fiscal sustainability.
The decline in debt service payments coincided with a notable surge in Letters of Credit (LCs), which rose to $95.6 million in February, marking a 48% increase compared to January’s figure of $64.6 million. This increase in LCs indicates a rebound in import-related activities as businesses adapt to the changing naira exchange rate and favorable government policies aimed at enhancing trade financing
President Bola Tinubu noted that Nigeria’s revenue-to-debt service ratio improved to 65% from 97% within his first 17 months in office. The government continues to engage with global lenders and investors to manage the rising debt burden, while the CBN aims to stabilize the naira and fulfill external commitments through its monetary policy.
Despite these efforts, the Debt Management Office (DMO) reported that debt servicing payments escalated by 69% in the first half of 2024, totaling N6.04 trillion, up from N3.58 trillion a year earlier. This significant rise can be attributed to naira devaluation’s impact on foreign debt repayments, contributing to a precarious fiscal situation for the Federal Government.
World Bank officials, including Chief Economist Indermit Gill, have voiced concerns over increasing debt service costs globally, indicating potential risks for developing countries. Experts suggest that higher oil revenues, enhanced tax collection, and strategic debt restructuring could assist in maintaining lower debt servicing levels moving forward. However, vigilance is necessary regarding Nigeria’s growing total debt stock and the need for improved fiscal discipline to control borrowing practices.
In summary, Nigeria’s reduction in debt service payments reflects successful efforts in restructuring and improving monetary conditions. The increased issuance of Letters of Credit highlights a positive adjustment in trade activities. Nevertheless, rising debt servicing costs, alongside the necessity for fiscal discipline, continue to pose significant challenges for the country. Stakeholders are urged to focus on sustainable financial practices to mitigate these risks.
Original Source: nairametrics.com
