In the first half of 2024, Nigerian states collectively spent approximately N139.92 billion on servicing external debt, a sharp increase of 122% compared to the N63.06 billion expended during the same period in the previous year. This significant rise is highlighted in an analysis of Federal Account Allocation Committee (FAAC) data provided by the National Bureau of Statistics (NBS).
The data reveals a dramatic shift in the monthly expenditure on debt servicing, with states moving from spending around N9 billion to over N20 billion. This surge in debt service costs, more than doubling in just a year, is likely influenced by the devaluation of the naira.
In January 2024, states spent N9.88 billion on external debt servicing, a reduction of 27.7% from the N13.67 billion paid in January 2023. This decrease suggests that some states may have faced fewer debt service obligations during this month.
Additionally, the exchange rate, which fluctuated between N830/$1 and N1,000/$1 during this period, was relatively stable, possibly contributing to the lower amount spent. The impact of currency depreciation on debt servicing costs had not fully materialized in January, as the deductions remained consistent with the average monthly payments seen throughout 2023.
However, by February 2024, the situation changed dramatically, with debt servicing payments skyrocketing to N24.53 billion—a staggering 148.2% increase from the N9.88 billion spent in February 2023.
READ ALSO:
This sharp rise underscores the potential effects of currency depreciation on repayment costs, indicating that the naira’s devaluation began to exert significant pressure on state budgets.
March 2024 witnessed the highest expenditure on debt servicing during this period, with payments reaching N40.41 billion.
This represents a 309.1% increase compared to the N9.88 billion spent in March 2023. The dramatic escalation in March could be attributed to the maturity of larger debt obligations at the end of the first quarter, placing additional strain on state finances.
From April to June 2024, the total cost of external debt servicing stabilized at N21.70 billion per month. While this figure marks a reduction from the March peak, it still represents a consistent 119.70% increase compared to the N9.88 billion spent during the same months in 2023.
The decrease from March’s high may indicate that some debt cycles were completed, but the continued high levels of expenditure underscore the persistent financial burdens faced by state governments.
This substantial increase in debt servicing costs reflects the growing fiscal pressures on Nigerian states as they struggle to manage escalating debt obligations in the face of a devalued currency and other economic challenges.