Checking Surge in Multilateral Loans

Nume Ekeghe writes on the emerging trend of multilateral loans taking the lead and significantly shaping the external debt landscape.

In the ever-evolving landscape of global finance, Nigeria finds itself navigating a complex web of external debt. Recent data from the Debt Management Office (DMO) reveals significant insights into the nation’s external debt profile as of June 2023. This comprehensive analysis sheds light on the trends, contributors, and implications of Nigeria’s external debt.

As of June 2023, Nigeria’s total external debt stood at $43,159.19 billion, representing an increase of $487.49 million from March of the same year. This growth, while not unprecedented, underscores the ongoing challenges the country faces in managing its external financial obligations.

One of the striking aspects of Nigeria’s external debt is the substantial role played by multilateral loans. These loans accounted for 48.17 per cent of Nigeria’s total external debt during the reference period, growing from $20,658.41 million to $20,790.74 million an increase of $132.33 million.

The World Bank Group (WBG) emerges as the largest contributor to Nigeria’s external debt stock, wielding a significant influence. Within the WBG, entities such as the International Development Association (IDA) and the International Bank for Reconstruction and Development (IBRD) have extended their financial support to Nigeria. The debt owed to IDA increased from $13,841.31 billion in March to $14,027.20 billion by June 2023, highlighting the substantial financial engagement between Nigeria and these international institutions.

In addition to the WBG, Nigeria has outstanding debts to other multilateral lenders, including the International Monetary Fund (IMF), the African Development Bank (AfDB), the African Development Fund, the International Fund for Agricultural Development (IFAD), and the Islamic Development Bank. Each of these lenders plays a unique role in shaping Nigeria’s financial landscape.

 Bilateral Debts and Commercial Loans

While multilateral loans dominate the scene, bilateral debts constitute a noteworthy portion, accounting for 12.79 per cent of Nigeria’s external debt. Within this category, the Exim Bank of China emerges as a significant player, with its share of Nigeria’s debt increasing from $4,336 billion in March to $4,726 billion by June. France, through the Agence Francaise Development, is another bilateral creditor, with Nigeria owing $572.61 million. Germany’s KfW has extended loans amounting to $135.26 million.

Commercial loans, specifically Eurobonds, make up a substantial 36.19 per cent of Nigeria’s total external debt stock. These financial instruments are denominated in currencies other than the Naira and are essential tools for raising capital on the international market. Notably, on July 12, 2023, Nigeria redeemed a $500 million Eurobond issued during the administration of ex-President Goodluck Jonathan in 2013. This marked the due date of the 10-year tenored debt instrument and showcased Nigeria’s commitment to managing its commercial debts responsibly.

 Promissory Notes and Beyond

Beyond the major categories of debt, promissory notes account for 2.16 per cent of Nigeria’s external debt stock. These instruments represent binding commitments to pay a specific amount on a specified date and are essential for managing short-term financial obligations.

The trends in Nigeria’s external debt profile raise important considerations for the nation’s financial stability and economic growth. While external borrowing can be a useful tool for financing critical infrastructure and development projects, it must be managed judiciously to avoid overburdening future generations.

Nigeria’s engagement with multilateral lenders highlights the importance of international cooperation in addressing economic challenges. The relationships with entities like the World Bank Group and the IMF provide access to financial resources and technical expertise that can drive sustainable development.

Bilateral relationships, particularly with China, carry both opportunities and risks. While Chinese loans have funded critical projects, careful negotiation and management are essential to ensure these debts do not become unmanageable burdens.

 In conclusion, Nigeria’s external debt profile is a complex tapestry of financial relationships with implications for the nation’s economic future. Careful management, transparency, and a focus on sustainable development will be essential as Nigeria continues to navigate its path through the global financial landscape.