Nigeria's financial landscape has been significantly impacted by a sharp increase in its external debt, which rose by approximately ₦30 trillion between 2023 and June 2024.
This surge is primarily attributed to the devaluation of the naira, which has exacerbated the country's debt burden in local currency terms. As of June 1, 2023, Nigeria's external debt stood at $43.16 billion.
However, due to the naira's depreciation, this figure now translates to a much higher amount in naira, raising concerns about fiscal sustainability and economic stability.
The primary factor driving the increase in Nigeria's debt is the devaluation of the naira. The exchange rate shifted dramatically from N770.30 to a dollar in June 2023 to N1,470.19 per dollar by June.
This depreciation resulted in an 89% spike in the naira equivalent of the country's external debt, despite a slight decline in the nominal dollar value of the debt.
Multilateral lenders such as the International Monetary Fund (IMF), World Bank Group, and African Development Bank Group (AfDB) are Nigeria's largest creditors, holding half of the nation's debt. Bilateral lenders, including China and France, also play a significant role in Nigeria's credit landscape. The Exim Bank of China is noted as Nigeria's largest bilateral lender, with $5.07 billion owed.
Addressing Nigeria's escalating debt requires a multifaceted approach. Strategies could include stabilizing the naira through sound monetary policies, diversifying the economy to reduce reliance on foreign loans, and enhancing fiscal discipline to manage existing debts more effectively.
Additionally, transparent communication with international creditors and stakeholders is crucial to negotiate favorable terms and conditions for debt servicing.
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