Nigeria is facing a huge debt burden as it is expected to pay off a $3.4bn loan from the International Monetary Fund (IMF) during the current administration of President Bola Tinubu.
The loan was obtained in April 2020 by the previous administration to cope with the economic impact of the COVID-19 pandemic and the sharp fall in oil prices.
The loan was approved under the Rapid Financing Instrument (RFI), which provides quick financial assistance to IMF member countries facing urgent balance of payments needs.
According to the IMF’s website, Nigeria still has an outstanding balance of $3.19bn as of July 31, 2023, which will be repaid between 2023 and 2027. The repayment schedule shows that Nigeria will pay the highest amount of $1.76bn in 2024, followed by $865.27m in 2025, $497.17m in 2023, and $33.99m each in 2026 and 2027.
The repayment amount includes both the principal and the interest fee, which is charged at 1% per annum. The loan has a five-year tenure with a two-year grace period, meaning that Nigeria started repaying the loan in 2022.
The Central Bank of Nigeria (CBN) confirmed the loan in its 2022 financial statements, stating that “Repayment of the IMF loans as well as charges is the responsibility of the bank.”
The CBN also stated that it entered into a crude repayment loan arrangement with AFREXIM Bank on behalf of the Federal Government of Nigeria in 2023. The loan enables the Nigerian National Petroleum Corporation Limited (NNPCL) to sell crude oil to AFREXIM Bank in exchange for naira and use the proceeds to fund its operations and import petrol.
The loan arrangement is part of the government’s efforts to stabilise the foreign exchange market and support the naira, which has depreciated significantly against major foreign currencies due to the floating of the naira policy introduced by President Tinubu in 2023.
The floating of the naira policy, which allows the market forces to determine the exchange rate of the naira, was one of President Tinubu’s economic reforms aimed at boosting economic growth and attracting foreign investment. However, the policy has also increased the cost of importing goods and services, including petrol, which Nigeria relies heavily on due to its low local refining capacity.
The government also announced the removal of subsidy and deregulation of the petrol sector in 2023, which led to a sharp increase in the pump price of petrol from N189 to about N500 per litre across the country. However, it was later revealed that the government was still secretly subsidising petrol to avoid further public outcry and possible civil unrest.
The government’s decision to borrow from the IMF and other sources has raised concerns about Nigeria’s debt sustainability and its ability to repay its creditors without compromising its development needs and social welfare.
According to the Debt Management Office (DMO), Nigeria’s total public debt stock as of March 31, 2023 stood at N38.67tn ($102.38bn), which comprises N23.52tn ($62.26bn) domestic debt and N15.15tn ($40.12bn) external debt.
The DMO also stated that Nigeria’s debt service cost for January-March 2023 was N980.57bn ($2.6bn), which represents 35% of its revenue for the same period. This means that Nigeria is spending more than one-third of its income on servicing its debts, leaving less resources for other developmental and social expenditures.
The IMF has advised Nigeria to adopt a prudent fiscal policy and implement structural reforms to enhance revenue mobilisation, improve public spending efficiency, reduce fiscal risks, and promote economic diversification.
The IMF also urged Nigeria to strengthen its debt management framework and strategy, improve debt transparency and accountability, and ensure that new borrowing is consistent with its medium-term debt management strategy and public financial management reforms.
As Nigeria continues to grapple with its debt burden and economic challenges, it remains to be seen how President Tinubu’s administration will balance its debt obligations with its development aspirations and social responsibilities.