The global credit ratings agency, Fitch, has projected Nigeria’s external debt servicing to rise by $400m to $5.2bn next year.
This is despite insistence by the current administration to focus more on domestic borrowings from the capital market.
It also estimated that approximately 30 per cent of Nigeria’s external reserves are constituted by foreign exchange bank swaps.
This was disclosed in the latest credit outlook for the country.
It revised Nigeria’s long-term credit default rating upward from stable to positive on the back of reforms in the foreign exchange market, oil industry and monetary policy over the past year.
On the external debt, the agency said external financing obligations through a combination of multilateral lending, syndicated loans, and potentially commercial borrowing will raise the servicing from $4.8bn in 2024 to $5.2bn in 2025.
The anticipated servicing includes $2.9bn of amortisations, including a $1.1bn Eurobond repayment due in November.
The report read, “External debt service will rise in 2025. Government external debt service is moderate, expected at $4.8bn in 2024 and $5.2bn in 2025 (with $2.9bn of amortisations, including a $1.1bn Eurobond repayment due in November). The government plans to meet its external financing obligations through a combination of multilateral lending, syndicated loans, and potentially from commercial borrowing.”
This disclosure underscores the nation’s high debt service-to-revenue ratio posing significant fiscal constraints.
In 2023, the FGN’s external debt service payments increased by US$1.1bn to US$3.5bn in FY2023, comprising US$1.9bn and US$1.6bn in market and non-market debt payments, respectively.
President Bola Tinubu stated that his administration is committed to stopping the vicious cycle of overreliance on borrowing for public spending and the resulting stress on the management of scarce government resources caused by debt service.
However, Fitch expressed uncertainties regarding the country’s net FX reserves, exacerbated by opaque entries amounting to nearly $32bn in FX forwards, over-the-counter futures, and currency swaps listed as off-balance sheet commitments in the Central Bank of Nigeria’s consolidated financial statement for 2022.
It noted that the lack of clarity over the precise size and composition of Nigeria’s FX reserves remains a significant constraint on the nation’s sovereign credit profile.
It said, “Uncertainty continues over the net FX reserve position, with a particular lack of clarity on near USD32 billion of ‘FX forwards, OTC futures, and currency swaps’ recorded as an off-balance sheet “commitment” in CBN’s last consolidated financial statement for 2022.
“Fitch estimates around 30% of Nigeria’s reserves are made up of FX bank swaps, although we expect most of these to continue to be rolled over.”
Despite these concerns, Fitch anticipates that most of the FX bank swaps will continue to be rolled over, which could provide some temporary stability in the reserves management.
Further insights from the report indicate a recent upswing in non-resident inflows into Nigeria, driven by a greater formalisation of FX activities and tighter monetary policy measures.
Commenting, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, said the debt servicing was not expected to pose any major risk to the macroeconomic situation.
