Why public debt is rising — DMO

The Debt Management Office (DMO) has explained that the rise in Nigeria’s public debt stock is partly due to exchange rate volatility, new borrowing, and Ways and Means securitisation.

In a statement posted on its website on Tuesday, the DMO noted that the debt growth resulted from authorised new external and domestic borrowing, alongside the securitisation of the Ways and Means Advances.

These measures, the DMO said, have been implemented to attract foreign exchange inflows, which are expected to bolster external reserves and support the naira exchange rate.

The DMO addressed the trend in total debt data between the fourth quarter of 2023 (Q4 2023) and the first quarter of 2024 (Q1 2024), noting that the increase of N24.33 trillion in naira terms has been misinterpreted as new borrowing.

It added that the actual new borrowing comprises: N2.81 trillion as part of the new domestic borrowing of N6.06 trillion provided in the 2024 Appropriation Act and N4.90 trillion as part of the securitisation of the N7.3 trillion Ways and Means Advances approved by the National Assembly.

Additionally, the official naira exchange rate depreciation from $/N899.39 in Q4 2023 to $/N1,330.26 in Q1 2024 significantly impacted the debt stock valuation in naira terms.

Despite the perceived sharp increase in total debt stock, the DMO clarified that the total external debt stock remained relatively stable, from $42.50 billion in Q4 2023 to $42.12 billion in Q1 2024.

However, the naira valuation showed a substantial difference, from N38.22 trillion to N56.02 trillion, due to the exchange rate depreciation. This exchange rate effect explains the N24.33 trillion increase in the total debt stock for Q1 2024.

In US dollar terms, the total debt stock actually declined from $97.34 billion in Q4 2023 to $91.46 billion in Q1 2024, highlighting the impact of exchange rate changes on debt valuation.

As of March 31, 2024 (Q1 2024), the total public debt in naira terms stood at N121.67 trillion, compared to N97.34 trillion as of December 31, 2023 (Q4 2023). The detailed debt data includes the domestic and external debt of the 36 states and the Federal Capital Territory (FCT).

The DMO stressed that recent economic reforms have significantly impacted key economic indices, such as the dollar/naira exchange rate and interest rates. These factors directly influence the debt stock and debt service obligations.

Director General of DMO, Patience Oniha, in a recent interview with the News Agency of Nigeria (NAN), said it is important to recognise the fact that Nigeria has undergone some major reforms which have impacted economic indices such as the dollar/naira exchange rate and interest rates.

“These two, in particular, affect the debt stock and debt service,” she said.

According to Oniha, the total external debt stock was relatively flat at $42.50 billion and $42.12 billion in Q4 2023, and Q1 2024, respectively.

“The naira values were significantly different at N38.22 trillion and N56.02 trillion respectively, representing a difference of N17.8 trillion,” she said.

“This explains the perceived sharp increase of N24.33 trillion in the total debt stock in the first quarter of 2024.

“The difference in the exchange rate for the two periods also explains why in dollar terms, the total debt stock actually declined in the first quarter of 2024 to $91.46 billion.”

The DG said the debt report was somewhat an improvement from the past, before President Bola Tinubu’s government.

More so, she said if foreign exchange impact is removed, “the debt is moderate and within normal limits”.

Oniha urged the federal government to prioritise fiscal retrenchment while assuring that the various measures to attract foreign exchange inflows would increase external reserves and support the naira exchange rate.