Currency devaluation to increase debt service burden over N3.3trn in 2021

Analysts have raised the alarm that the 8.2 per cent devaluation of the naira from N379/$ to N410/$ will raise the actual debt service amount far beyond the N3.3 trillion earmarked for 2021.

They argued that, the amount set aside by the government to finance debt in 2020 went up by 10.8 per cent as a result of the 23.9 per cent devaluation of the naira from N306/$ to N379/$ in 2020.

According to analysts at Afrinvest, the government ended up spending N3.3 trillion naira, instead of the N3 trillion earlier budgeted.

They explained that, though, the country’s total debt stock as a percentage of Gross Domestic Product (GDP) remains below the Debt Management Office (DMO) medium-term debt sustainability benchmark (40.0 per cent of GDP) and the International Monetary Fund (IMF) threshold for low-income countries which is 70.0 per cent of GDP, concern is the impact of the recent devaluation of the naira to N410.00/$ from N379.00/$ on the external debt service cost going forward

For instance, in 2020, the FG’s budgeted amount for debt service was N3.0 trillion. However, the actual amount spent on debt service printed at N3.3 trillion, representing a 10.8 per cent increase over the amount budgeted. Although the reason for the increase in actual debt service figure was not provided by the Ministry of Finance, Budget and National Planning, we believe the 23.9 per cent naira devaluation from N306.00/$ to N379.00/$ in the second half of 2020 played a significant role in this rise, especially with regards to foreign debt”, said Afrinvest.