MPC member concerned over Nigeria’s rising external debt

A member of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), Professor Mike Obadan, expressed concern over the growing proportion of external debts in the composition of the total outstanding public debt of the country.

Obadan, who raised the concern in his personal statement at the MPC meeting in January, urged the country’s authorities to tackle the trend to avoid the currency implications of external debt servicing. CBN posted the MPC members’ personal statements on its website this weekend.

As Obadan put it, “Government debt has soared to over 38.0 trillion naira. What also looks worrying now is the composition which shows external debt rising beyond the target of 40.0% of the total outstanding debt compared to a domestic debt of 60.0%.

“The latest data shows the ratio is 46:54% for external debt and domestic debt, respectively.

This trend needs to be verified given the currency implications of servicing the external debt.

In a report on Friday, analysts at the Financial Derivatives Company (FDC) said that with the crisis triggered by Russia’s invasion of Ukraine pushing global monetary authorities into a monetary tightening frenzy, there will be an increase in interest rates, which will lead to increased debt service costs for emerging and developing economies, such as Nigeria.

Analysts noted that the US Fed is expected to raise interest rates this month while the Bank of England (BoE) raised its benchmark rate by 25 basis points to 0.5% at its February meeting. .

The New Telegraph reports that data released by the Debt Management Office (DMO) shows that Nigeria spent $520.78 million on external debt service in the third quarter of 2021, an increase of $74.2 million. % compared to $298.9 million recorded in the previous quarter (Q2 2021).

The DMO also said that Nigeria’s external debt rose to $37.96 billion in the third quarter of 2021 from $33.47 billion recorded in the previous quarter, adding that the increase in the country’s external debt was due to the four billion Eurobonds raised on the international debt market in September to bring the country’s external reserve above 40 billion dollars.

Similarly, according to the DMO, the country’s domestic debt stock also headed north in Q3’21, with the federal government’s domestic debt stock reaching $44.44 billion, while domestic state debts increased to $10.23 billion.

Furthermore, the data indicates that the country’s domestic debt servicing costs increased significantly by 150.5% from N322.75 billion recorded in the second quarter of 2021 to N808.49 billion in the third quarter. quarter of 2021.

This means that the cost of servicing domestic debt rose to 1.74 trillion naira during the period from 1.53 trillion naira recorded during the same period of 2020.


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