https://thestreetjournal.org/naira-depreciation-increases-nigerias-foreign-debt-burden-by-n9tn/

The drop in value of naira to United States (US) dollar has increased Nigeria’s foreign debt burden by N9 trillion.

The value of naira slumped from N196.92 in June 2015 to N414.72 in June 2022.

Within the seven years under review, the naira depreciated by 52.52 percent against the US dollar.

The monthly average exchange rates of the naira (naira per unit of foreign currency) for 2015 document obtained from the website of the Central Bank of Nigeria (CBN) showes that the one dollar was N196.92 for inter-bank foreign exchange market.

The exchange rate for one dollar as of June 30, 2022, was N414.72, according to the figure provided by the CBN.

Nigeria’s total external debt rose from $10.32 billion as of June 30, 2015, to $40.06 billion as of June 30, 2022.

This showed that there was an increase of 288.18 percent in seven years, according to the external debt stock reports by the Debt Management Office (DMO).

A breakdown showed that in 2015, states had $3.27 billion external debt while the federal government had $7.05 billion.

By 2022, states’ external debt had risen to $4.56 billion, while the federal government’s external debt was $35.5 billion.

The debts include loans from multilateral sources such as the World Bank, the African Development Bank and the International Monetary Fund (lMF), including those from bilateral sources such as China, France, Japan, Germany and India, The Punch reports.

They also include debts commercial sources, which include Eurobonds and Diaspora bonds.

If the CBN average exchange rate for June 2015 was used to weigh the country’s current $40.06 billion foreign debt, Nigeria’s external debt in naira terms would have been N7.89 trillion.

However, with the exchange rate of N414.72 as of June 30 this year, the total external debt in naira terms was N16.61 trillion, showing a difference of N8.72 trillion.

By implication, it will cost Nigeria N8.72 trillion in naira terms if the country decides to pay back the $40.06 billion external debt in 2022.

If this same debt was incurred in 2015, Nigeria would have spent N9 trillion less, given the then exchange rate of N196.92 per dollar.

The managing director/chief executive officer of Cowry Asset Management Limited, Johnson Chukwu, while reacting to this development, said that high external debt would impose a huge debt service on the economy.

Johnson said that, “This will impose a huge debt service on the economy, particularly at a period when we have low revenue from oil sales.

“If the revenue from oil sales does not improve, then the government will be struggling to meet that debt service obligation to foreign lenders.”

However, he noted that Nigeria could service its foreign debt at the current level, but a constant increase in debt without a corresponding increase in foreign currency earnings could put the country in a difficult position.

In a bid to manage the value of naira, the CBN introduced a number of policies such as stopping 41 items from accessing forex at the official market, offering N5 for every $1 of funds remitted to Nigeria through Internal Money Transfer Organisations (IMTOs), banning the supply of forex to Bureau de Change, among others.

However, these policies have not been able to guarantee naira stability.

The World Bank had said that it is not in agreement with the CBN on how it attempts to achieve price stabilisation of the naira, adding that the local currency should be allowed to respond to real pressures, and not be bottled up by the CBN.

The IMF recently said that the long-term rate of the depreciation of the naira equated to a loss of 10.6 per cent of its value annually since 1973.

According to the IMF, this rate was 1.5 times higher than the long-term rate of the currencies of other emerging markets and developing economies at 7.2 percent, and sub-Saharan Africa at seven percent over the same time period.

Meanwhile, financial experts, during a recent workshop on tax expenditure organised by the ECOWAS in Abuja, advised that Nigeria and other West African countries should move away from reliance on foreign assistance to finance developmental projects in the region.

According to them, over-dependence on financial aid and external loans might affect long-term prosperity for the entire region.

The Special Advisor to the Director (Custom Union and Taxation in ECOWAS), Gbenga Falana, while emphasizing that the debt profile of most of the countries in the sub-region was mounting, stressed the need for West African countries to look inwardly and finance local projects through effective domestic resource mobilization.