The continuous depreciation of Nigeria’s currency, the naira, has led to a significant increase in the country’s external debt, which now stands at N33.25 trillion, up from N19.64 trillion.
Data from the Debt Management Office (DMO) reveals that the total external debt increased by $490 million between the first quarter of 2023 and the second quarter of 2023, resulting in a substantial rise in its naira equivalent.
In Q2 2023, Nigeria’s external debt reached $43.16 billion, compared to $42.67 billion in the previous quarter. When converted to naira, this translates to N33.25 trillion in Q2 2023, a notable increase from N19.64 trillion in the preceding quarter. The naira depreciation was responsible for this significant surge, amounting to N13.61 trillion.
It’s worth noting that in June, President Bola Tinubu directed the Central Bank of Nigeria (CBN) to unify the nation’s foreign exchange rates. The CBN then instructed Deposit Money Banks to remove the rate cap on the naira at the official Investors and Exporters’ Window of the foreign exchange market, allowing it to float freely against the dollar and other global currencies.
This policy shift, aimed at unifying exchange rates, contributed to the substantial increase in external debt when measured in naira.
Following the CBN’s unification policy, the DMO adopted an exchange rate of N770.38/$ for Q2 2023, a departure from the N460.35/$ rate used in Q1 2023. As a result of the unification, the naira’s value has decreased significantly, falling from 471/$ to 770.38/$ at the Investors & Exporters FX window as of last week. In the parallel market, it depreciated further to reach N1000/$ last week.
Had the same exchange rate from Q1 been applied to Q2, Nigeria’s external debt would have amounted to N19.87 trillion in naira terms, and the substantial increase of N13.38 trillion would not have occurred.