Nigeria owing World Bank over $9.6bn to service foreign debts in 12yrs

On December 6, 2022, the World Bank said that Nigeria would have spent $9.6 billion servicing its foreign loans over the next 12 years, from 2010 to 2021, a figure that does not take into account the country’s debt stock, According to Vanguardngr.

The International Debt Report (IDR) published by the World Bank revealed the staggering increase in Nigeria’s external indebtedness over the course of 12 years: 305%.

As stated in the research, by 2021, Nigeria had accumulated $76.21 billion in foreign debt, up from $18.39 billion in 2010. In the first half of 2022, Nigeria racked up $103 billion in external debt.

Equally startling was the 2,819 percent increase in the yearly interest payment on foreign borrowing, from $59.3 million in 2010 to $1.73 billion in 2021.

The World Bank defines external debt as debt owing to non-residents that may be repaid in foreign money, products, or services. Total debt is the total of long-term debt, short-term debt, and International Monetary Fund (IMF) credits that are held by the public, the public sector, and the private sector that is not guaranteed by the public.

Additionally, the analysis demonstrated that $30.66 billion was spent on principle repayments of Nigeria’s foreign debt throughout the 12-year period, with yearly principal repayment increasing by 469% from $1.189 million in 2010 to $6.77 million in 2021.

In the wake of a dramatic growth in both the stock of foreign debt and interest payments, the World Bank found that Nigeria’s debt ratios deteriorated, with the ratio of external debt to export rising to 144.4 percent in 2021 from 22.5 percent in 2010. The ratio of the country’s external debt service to its exports also increased, rising to 16.5% in 2021 from only 1.5% in 2010.

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The World Bank warns that Nigeria and other developing countries face increasing dangers due to their debt levels, as rising interest rates and declining global development threaten to push several nations into debt crises. 60% of the world’s poorest nations are either in debt trouble or are at a significant danger of entering it.

Borrowing levels not reflected in the economy

At the same time, World Bank Country Director for Nigeria Shubham Chaudhuri has said that the country’s economy does not reflect the enormous amount of debt stock, and that the World Bank is worried that the cost of debt servicing surpasses the income of the country.

In a similar vein, World Bank Lead Economist for Nigeria Alex Sienaert said that the country’s growing reliance on borrowing makes the high cost of debt repayment unsustainable.

At a media roundtable in Lagos, Chaudhuri remarked, “Nigeria has great potential, and frequently you can see it through the effect of the Nigerians in Diaspora and the rest of the globe, as well as the potential you see inside Nigeria right now.”

However, Nigeria has enormous difficulties. Nigeria will never be able to climb out of its current predicament until it does two very simple things: invest in its people; and allow private enterprises to flourish and generate employment.

The average salary has not increased much from the 1980s to 2020. In a country like Indonesia, which is extremely similar to Nigeria, you can easily see the difference. In the 1980s, the median income in both nations was around the same. As long as oil prices remain high, life is good. Nigeria is at a crossroads, and the country may go one of three ways.

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Assuming current trends continue, this is the most probable scenario. But then why are we trying to wake them up? For the first time in Nigeria’s history, the opposite of good times has occurred.

Oil prices are on the up, but oil and gas income is falling. The government should stop subsidized gasoline sales since it is not benefiting the poor. This period is unusual for Nigeria for a number of reasons, including the fact that, for the first time, the country’s debt payment costs have surpassed its income.

When oil prices rise, Nigeria’s current account balance improves and the country’s foreign exchange reserves often increase. But, along with income, foreign exchange reserves have been falling for the first time. In such case, the issue becomes, “Where are all those loans being put?”

Alex Sienart, another speaker, contrasted Nigeria to Kenya and found that the latter’s debt stock was far larger in relation to its GDP. But you need to consider how much it is costing the government to service the national debt.

More over half of Nigeria’s annual income is used to pay interest on the country’s debts. This means that although Nigeria does not have a debt issue, it does have a revenue problem. Regardless of your perspective, it’s clear that the current situation cannot last.

“As your debt load rises beyond your income, you’ll soon need to borrow money just to keep up with the minimum payment, let alone pay down the principal.” Indicative of foreign exchange’s scarcity, as evidenced by the premium seen on the black market. The markets have taken note of these difficulties, which have raised Nigeria’s risk premium and borrowing cost.

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