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Nigeria, others spend $441b on debt servicing

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By Abdulwasiu Usman

Developing nations' debt-servicing expenses surged by 5 percent.

A recent report by the World Bank reveals that over the past four decades, Nigeria and other developing nations have allocated an astonishing $441 billion towards paying off debts. The report further highlights Nigeria position as the leading recipient of new loans in 2022, having received a substantial $2.9 billion. Tanzania closely follows, having secured $2.7 billion in loans during the same year, according to the World Bank’s International Debt Report for 2023. As of June 30, 2023, Nigeria external debt stock report from the Debt Management Office revealed an outstanding obligation of $14.51 billion owed to the World Bank.

The World Bank issued a statement cautioning that low-income nations face a looming threat of financial crises owing to the sudden rise in global interest rates. It emphasized that as global interest rates experienced their most significant ascent in the past forty years, developing countries found themselves compelled to allocate an unprecedented $443.5 billion to service their external public and publicly guaranteed debts during the year 2022. According to the statement, the surge in interest rates has resulted in the allocation of limited resources being redirected from essential sectors like education, healthcare, and the environment.

60% of low-income countries are in a perilous state of debt.

As per the statement, it was mentioned that developing nations experienced a 5% surge in debt-servicing expenses, comprising both principal and interest payments, compared to the previous year. A record amount of $88.9bn in debt-servicing was paid by the 75 eligible borrowing nations from World Bank’s International Development Association in 2022, which aids the most destitute countries. These countries witnessed a fourfold increase in interest pay-outs over the last ten years, reaching an unprecedented peak of $23.6bn in 2022. The 24 poorest countries are projected to witness a significant surge of up to 39% in their debt-servicing expenses in 2023-2024.

According to the Bretton Woods Institution, an increase in interest rates has heightened the susceptibility of all developing countries to debt. A significant rise in sovereign defaults has been observed over the past three years, surpassing the combined number of defaults witnessed in the preceding two decades, impacting ten developing nations. Disturbingly, approximately 60% of low-income countries currently find themselves in a perilous state of debt or are on the brink of entering one. Developing nations’ debt service payments are impacted by the strength of the US dollar, as stated by the World Bank.

Consequences of soaring interest rates is concerning.

It was reported that developing countries are facing exacerbated challenges due to the robust US dollar, resulting in increased expenses for making payments. In such circumstances, if interest rates surge or export earnings sharply decline, these countries could be pushed towards a breaking point. As the costs of debt payment have risen, the availability of new funding alternatives for these nations has significantly diminished. Indermit Gill, the Chief Economist and Senior Vice President of the World Bank Group, expressed concerns about the consequences of soaring interest rates. Gill said the accumulation of significant debt and the prevailing high interest rates have pushed numerous nations towards an impending crisis.

With the burden of escalating interest rates quarterly, developing nations are forced into a daunting dilemma: service their towering public debts or channel funds into pressing priorities like public health, education, and infrastructure development. It is imperative that debtor governments, private and official creditors, and multilateral financial institutions collaborate swiftly and harmoniously to ensure enhanced transparency, improved debt sustainability mechanisms, and expedited restructuring procedures to alleviate the situation. These statistics shows that a growing percentage of developing nations are teetering on the edge or are already overwhelmed by debt burden due to the compounding and overlapping crises they confront.

Debt service-to-revenue ratio for Nigeria in 2023 stands at 73.5%.

Due to soaring interest rates, the strict global financial condition, the strong US dollar gaining strength, rising investor reluctance to take risks, and a surge in borrowing over the past few years, several developing economies find themselves trapped in debt crises. The Debt Management Office (DMO) describes Nigeria’s debt service-to-revenue ratio for 2023, which stands at an alarming 73.5 percent, as both unsustainable and menacing. In the first quarter of 2023 alone, Nigeria had already spent ₦874.13bn on domestic debt servicing, while it spent $801.36m (₦368.87bn) on external debt servicing, giving a total of ₦1.24tn.


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AN-Toni
Editor
2 months ago

Nigeria, others spend $441b on debt servicing. – Developing nations’ debt-servicing expenses surged by 5 percent. – Express your point of view.

Adeoye Adegoke
Member
2 months ago

That’s a staggering amount! The fact that developing nations, including Nigeria, spent $441 billion on debt servicing is definitely concerning. The surge of 5 percent in debt-servicing expenses highlights the financial burden that these countries face.
It’s crucial for countries to strike a balance between servicing their debts and investing in essential sectors such as healthcare, education, infrastructure, and social welfare. While it’s important to honor financial obligations, it’s equally important to ensure that the needs of the people are met and that sustainable development is prioritized.
Efforts should be made to explore strategies that can help alleviate the debt burden, such as debt restructuring, renegotiation, and seeking support from international financial institutions. Additionally, there is a need for transparent and accountable governance to ensure that borrowed funds are utilized efficiently and effectively for the benefit of the people.
It’s also important for developed nations and international organizations to support developing countries in their efforts to manage their debt and promote sustainable economic growth. By fostering partnerships and providing assistance, we can work towards reducing the debt burden and creating a more equitable global financial system.
Overall, finding a balance between debt servicing and investment in critical sectors is crucial for the long-term development and well-being of developing nations. It’s a complex issue, but with concerted efforts and collaboration, we can strive towards a more sustainable and prosperous future. 🌍💰🤝

Taiwo
Member
2 months ago

The remarkable $441 billion that Nigeria and other developing countries have set aside for debt repaymentInvestigations into methods that can lessen the burden of debt should be conducted. our debt should not continue increasing we should try and stop borrowing and find our own revenue that will be bring money in for the country

Kazeem1
Member
2 months ago

$441 billion is spent on debt servicing by Nigeria and other countries. Debt payment costs in developing countries increased by 5%. The amount of money that emerging countries like Nigeria are paying on debt service is alarming. Better uses of this money would be to enhance healthcare, education, and infrastructure, all of which would enhance people’s quality of life.

SarahDiv
Member
2 months ago

The high debt service-to-revenue ratio of 73.5% in 2023 is concerning, impacting crucial sectors like education and healthcare. Collaborative efforts are vital to address transparency and debt sustainability for the well-being of the nation.