Nigeria’s external debt burden is expected to increase significantly if the naira continues to depreciate, analysts have warned.
The ongoing slide of the local currency against the US dollar is likely to exacerbate the cost of servicing external debt, adding pressure to the country’s fiscal position and threatening long-term economic stability.
A report by PriceWaterhouseCoopers (PwC) titled “2025 Nigeria Budget and Economic Outlook” highlights the risks of further devaluation on Nigeria’s debt obligations.
According to the report, fluctuations in exchange rates will heavily influence the country’s total debt in 2025, with further depreciation of the Naira driving up external debt burdens.
The oversubscription of Nigeria’s $2.2 billion Eurobond in 2024, which saw a peak order book of over $9 billion, signaled investors’ confidence but also adds to the nation’s growing debt stock. PwC cautions that relying heavily on debt instruments without corresponding revenue-generating investments risks crowding out private sector investment and worsening debt sustainability.
Data from the report shows that Nigeria’s external debt rose by 89.7 per cent to N63.1 trillion in dollar terms by the second quarter of 2024, compared to N54.31 trillion in Q2 2023.
In naira terms, external debt increased by 31.6 per cent to N71.2 trillion, driven by increased subscriptions to Federal Government bonds and a sharp 47 percent depreciation of the Naira, from N770.38/$ in 2023 to N1,470.19/$ in 2024.
PwC predicts that Nigeria’s fiscal and exchange rate dynamics will shape its total debt burden in 2025. However, the report warns that the country may struggle to attract significant foreign investments if negative real returns persist.
The banking and manufacturing sectors recorded significant capital inflows in 2024, with $579.48 billion and $624.71 billion, respectively. The banking sector’s recovery was attributed to strong economic fundamentals and revaluation gains, while the manufacturing sector benefited from industrialization efforts and policy reforms.
Despite these gains, Nigeria faces significant challenges in combating inflation and maintaining investor confidence. PwC noted that while advanced economies have begun reducing policy rates as inflation approaches target levels, Nigeria’s Central Bank (CBN) raised its policy rate five times in 2024 to counter inflation, which surged to 34.6% in November 2024.
This tightening monetary policy has not been sufficient to offset the negative effects of inflation on real interest rates.
PwC explained that Nigeria’s negative real interest rates—where inflation surpasses interest rates—make local assets less attractive to international investors.
“If inflation rises in advanced economies in 2025, their central banks may increase policy rates, leading to a shift of funds toward markets offering positive real returns. This may exacerbate capital outflows from Nigeria, where negative real interest rates diminish the appeal of local assets,” the report stated.
PwC expressed cautious optimism that exchange rates could stabilize in 2025, supported by CBN reforms designed to boost foreign exchange inflows. However, the report emphasised the need for disciplined monetary policies to address liquidity challenges and control inflationary pressures.
In October 2024, Nigeria’s money supply (M2) grew by 48.2 percent year-on-year to N107.7 trillion, while inflation surged to 34.6 percent in November. Despite an increase in the Monetary Policy Rate (MPR) to 27.5 percent, managing liquidity and achieving price stability remain daunting tasks.
Persistent imbalances between money supply growth and productivity are expected to undermine the CBN’s efforts to effectively manage inflation in 2025. PwC stressed the importance of disciplined monetary policies to ensure long-term price stability and economic sustainability.
With these challenges, analysts caution that Nigeria’s external debt burden will remain a critical issue unless urgent steps are taken to stabilize the currency, diversify revenue sources, and attract sustainable investments.
