Nigeria’s debt service payments fell sharply from $540 million in January to $276 million in February 2025, as reported by the CBN. Simultaneously, Letters of Credit surged by 48%, signaling a recovery in trade financing. President Tinubu noted an improved revenue-to-debt service ratio and ongoing negotiations with international lenders aim to manage the growing debt burden. However, concerns remain over Nigeria’s total debt and the need for fiscal discipline amid rising service costs.
In February 2025, Nigeria witnessed a significant decrease in its debt service payments, dropping to $276 million from $540 million in January. This information was reported by the Central Bank of Nigeria (CBN), which indicated that the decline is a result of the federal government’s ongoing initiatives to restructure its debt and enhance dollar liquidity while managing foreign exchange pressures. The CBN’s data further emphasizes the increasing burden debt obligations impose on Nigeria’s external reserves and overall fiscal health.
Amidst the drop in debt servicing, there has been a notable increase in Letters of Credit (LCs), which surged by 48% in February 2025, totaling $95.6 million compared to $64.6 million in January. This uptick in LCs signifies a rebound in trade financing activities as businesses adapt to the volatile naira exchange rate and government policies aimed at stabilizing the trade sector.
President Bola Tinubu announced that within the first 17 months of his administration, Nigeria’s revenue-to-debt service ratio has improved from 97% to 65%. The federal government is actively engaging with international lenders and investors to tackle the escalating debt issue, while the CBN’s monetary policy is primarily focused on stabilizing the naira in the context of external liabilities.
Reports from the Debt Management Office (DMO) indicate that Nigeria’s debt servicing expenditures rose dramatically by 69% in the first half of 2024, reaching N6.04 trillion, up from N3.58 trillion in the corresponding period in 2023. This rise is attributed to the depreciation of the naira affecting foreign debt repayments, which raises concerns over the sustainability of the federal government’s finances as such repayments absorb a significant share of its budgetary resources.
The World Bank has voiced alarm regarding the escalating debt service costs afflicting developing nations, underscoring the potential for a broader financial crisis if measures are not promptly enacted. Experts suggest that enhancing oil revenues, improving tax collection, and executing strategic debt restructuring could sustain lowered debt service payments; however, apprehensions regarding the growing total debt stock and the necessity for fiscal discipline to curb excessive borrowing persist.
In conclusion, Nigeria’s reduction in debt service payments signifies efforts to enhance fiscal responsibility amidst evolving economic challenges. The contrasting rise in Letters of Credit highlights a shift towards bolstered trade activity, while ongoing government engagement with international lenders and strategic monetary policies may pave the way for a sustainable fiscal future. Yet, vigilance remains crucial to address the rising debt stock and adhere to disciplined borrowing practices.
Original Source: nairametrics.com
