The naira value of the federal government’s external debt increased by N17.37 trillion from N16.703 trillion as of December 2022 to N34.073 trillion in December 2023.
This is according to the external debt report published by the Debt Management Office (DMO) for the fourth quarter of 2023.
According to the data, the federal government increased its external debt by $646.54 million in 2023 from $37.238 billion in 2022 to the current $37.885 million.
Reason for the increase
The whopping increase in the naira value of the federal government’s external debt stems from the significant disparity in the exchange rate used for calculating the loans between the two years.
In 2022, the Debt Management Office (DMO) used an exchange rate of N448.08/$ to realise the naira value of the external loan while for 2023, the exchange rate used is N899.39/$.
The significant rise in the naira value of the federal government’s external debt is due to the unification of the foreign exchange market and subsequent revaluation of the naira by the Central Bank of Nigeria (CBN) in 2023.
In June 2023, the CBN announced the unification of the foreign exchange market thereby abolishing the fixed exchange rate system- a move towards a floated currency.
Implication of FG’s finance and expenditure
The implication of the increased naira value of FG’s external debt is that the federal government will need to obtain additional funds in their local currency to cover the repayment and servicing of these loans, especially during a period when government’s income is limited and constrained.
The rise in the external debt could also push spending on critical sectors like health, education, social services and infrastructure towards debt servicing.
External debt value with recent FX rate
It is important to note that the current naira value of the federal government’s loan is significantly higher than the figure reported for December by the DMO.
According to Nairametrics daily FX monitor, the naira closed at N1431/$ on the official NAFEM window. This is a difference of N531.61/$ representing a 59.1% depreciation in the value of the naira between December 2023 and March 2024.