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Fitch predicts Nigeria’s external debt servicing to surge by $400m amidst rising fiscal concerns

Despite Government's Emphasis on Domestic Borrowing, Debt Obligations Set to Climb, Warns Global Credit Ratings Agency

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Fitch, the renowned global credit ratings agency, forecasts a notable increase of $400 million in Nigeria’s external debt servicing, reaching $5.2 billion next year. This projection comes amid the government’s push for greater reliance on domestic borrowings from the capital market.

Revealing insights into Nigeria’s economic landscape, Fitch estimates that approximately 30% of the nation’s external reserves consist of foreign exchange bank swaps, highlighting the intricacies of its financial dynamics.

The agency’s latest credit outlook for the country revises Nigeria’s long-term credit default rating upwards, shifting from stable to positive, citing reforms in critical sectors such as the foreign exchange market, oil industry, and monetary policy over the past year.

However, despite these positive strides, Fitch flags concerns over the nation’s high debt service-to-revenue ratio, which poses significant fiscal constraints. In 2023, the Federal Government of Nigeria’s (FGN) external debt service payments surged by $1.1 billion to $3.5 billion, underscoring the pressing need for sustainable debt management strategies.

President Bola Tinubu has reiterated the administration’s commitment to breaking the cycle of overreliance on borrowing for public spending, acknowledging the strain it places on managing scarce government resources.

Yet, Fitch remains wary of uncertainties surrounding Nigeria’s net foreign exchange (FX) reserves, particularly opaque entries amounting to nearly $32 billion in FX forwards, over-the-counter futures, and currency swaps listed as off-balance sheet commitments in the Central Bank of Nigeria’s consolidated financial statement for 2022.

Addressing these concerns, Dr. Muda Yusuf, Chief Executive Officer of the Centre for the Promotion of Private Enterprise, expressed optimism that debt servicing would not pose a significant risk to the macroeconomic landscape. However, Fitch’s cautious stance underscores the imperative for Nigeria to pursue prudent fiscal policies to navigate its debt obligations while fostering sustainable economic growth.

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