Analysts cautious as N190bn SDR charges, debts tug finances despite $3.4bn IMF repayment

Onome Amuge

Nigeria has officially cleared the $3.4 billion financial lifeline it received from the International Monetary Fund (IMF) under the Rapid Financing Instrument (RFI) during the peak of the COVID-19 pandemic. This follows the IMF’s confirmation of the full repayment of the principal amount, disbursed in April 2020 to buffer the Nigerian economy against the severe shocks of plummeting oil prices and widespread economic paralysis.

However, the narrative of a complete exit from IMF obligations is premature. Despite settling the principal sum, Nigeria remains on the hook for approximately $30 million in Special Drawing Rights (SDR) charges. This translates to an estimated N48.2 billion annually at the prevailing exchange rate, and these payments are projected to continue for the next four years, culminating in a total outlay exceeding N190 billion.

The SDR, a supplementary international reserve asset managed by the IMF, represents a claim on freely usable currencies of IMF member countries. These assets can be exchanged for these currencies to meet balance of payments needs.

IMF clarifies repayment terms

Christian Ebeke, the IMF’s resident representative for Nigeria, provided clarity on the repayment of the RFI facility. He stated, “As of April 30, 2025, Nigeria has fully repaid the financial support of about US$3.4 billion it requested and received in April 2020 from the International Monetary Fund (IMF) under the Rapid Financing Instrument to help alleviate the impact of the COVID-19 pandemic and the sharp fall in oil prices.”

Nevertheless, Ebeke emphasised the ongoing financial commitments, explaining that Nigeria is expected to honour some additional payments in the form of Special Drawing Rights charges of about $30 million annually over the next few years.

According to the IMF’s analysis, the charges,levied in accordance with the IMF’s Articles of Agreement, are calculated based on the SDR interest rate, which is adjusted weekly. They are applied to the difference between a member’s SDR holdings and their cumulative SDR allocation.

Currently, Nigeria’s SDR holdings stand at SDR 3,164 million, while its cumulative allocation is SDR 4,027 million, resulting in a net difference subject to these charges. The IMF clarified that these payments will cease once Nigeria’s SDR holdings equal its total allocation.

Government celebrates amid growing debt pile

The news of the principal loan repayment has been greeted with enthusiasm within government circles. Otega Ogra, the senior special assistant to the president, disseminated a widely circulated message on X (formerly Twitter), proclaiming Nigeria’s supposed exit from the IMF’s debtor list. He lauded this as a testament to the discipline, reform and strategic reset by the Tinubu-Shettima administration in restructuring our finances to enable us to be better placed for a prosperous future.”

However, this celebratory tone strikes a discordant note against the backdrop of Nigeria’s worrisome debt profile. Data from the Debt Management Office (DMO) reveals that Nigeria’s total domestic and external debt stock had ballooned to over N144.67 trillion by December 2024. This figure is projected to rise further, fueled by the N13 trillion budget deficit for 2025 and the recent slump in global oil prices, which analysts anticipate will necessitate increased borrowing to bridge the fiscal gap.

According to financial reports, Nigeria’s indebtedness extends beyond the IMF, encompassing obligations to other multilateral institutions such as the World Bank and the African Development Bank (AfDB).

In 2024, the nation expended $4.66 billion on external debt servicing, a notable increase from the $3.5 billion spent in 2023. Multilateral creditors accounted for the lion’s share of these payments, receiving $2.62 billion, representing 56 per cent of the total. Furthermore, Nigeria’s appetite for new loans from the World Bank remains robust, with over $8 billion in fresh credit secured from the institution.

Analysts warn against complacency, emphasise fiscal prudence

Economic analysts have cautioned against premature jubilation over the IMF loan repayment, stressing that Nigeria’s overall debt burden remains a critical and pressing issue. While acknowledging the repayment of the principal as a positive development, they argue that it does not fundamentally alter the nation’s precarious fiscal standing.

Ndubisi Nwokoma,professor of Economics,University of Lagos, asserted that the IMF repayment does little to change the broader debt landscape.

 “That has not changed the big picture; the big picture is still not a good or desired position. Government is still borrowing, Nigeria is indebted to many multilateral institutions, and is indebted to AfDB, World Bank, while still taking bilateral loans. The IMF repayment doesn’t significantly change the country’s debt profile,” he stated.

Nwokoma further noted that while the removal of fuel subsidies and the harmonisation of the foreign exchange market in 2023 offered some fiscal respite, the recent decline in crude oil prices poses a threat, potentially pushing the government back towards increased borrowing.

“So, nothing has changed on the part of the common man or the economy or the inability to get the economy out of the woods. Public finance and fiscal sustainability were being assisted by those earlier policies in 2023, but the drop in the price of crude may make us revert to our borrowing ways. So, not much has really changed,” the economic expert added.

Muda Yusuf, the director/CEO of the Centre for the Promotion of Private Enterprises (CPPE), also shared similar sentiments, stating that while the IMF loan repayment signals a commitment to reducing the debt burden, sustained and intensified efforts are crucial.

“However, I think we need to continue to double down on the reduction of our debts because, given the current debt level and particularly the current level of our debt service commitment and the amount of resources we are committing to debt service, it will help our fiscal and debt sustainability if we work towards reducing the totality of our debt exposure, especially external debt, because, from all indications, external debts are much more difficult to manage and service than domestic debts,” he said.

Yusuf emphasised the need for a dual focus on reducing both domestic and external debt, highlighting the particular challenges associated with managing foreign currency-denominated obligations.

 “The payment of these components of debt is a welcome development; it will, in some sense, reduce the burden of outstanding debts, and we need to do a lot more of that. Going forward, as much as possible, we should reduce our exposures, especially to foreign debts,” he noted.

The CPPE chief also underscored the importance of ensuring that borrowed funds are strategically deployed to enhance the economy’s productive capacity.

“The utilization of debts is also important; debts must be committed to projects that would enhance productivity in the economy, and that should be our priority, largely speaking to our infrastructure stock,” he added.

Yusuf called for the prioritisation of infrastructure investment in Nigeria’s debt portfolio and expressed optimism that ongoing fiscal consolidation objectives, including tax reforms, would improve revenue generation and alleviate the pressure to incur further debt.

“We expect that the revenue administration would be much more efficient without necessarily putting an additional burden on citizens or businesses. If we can achieve that, then the pressure to incur more debt would reduce. We also need to ensure that the cost of domestic debts is as low as it can be,” he advised.

Lingering questions over fiscal sustainability

According to analysts, the contrasting narratives surrounding Nigeria’s IMF loan repayment underscore the fiscal challenges confronting the nation. They noted that while the government understandably seeks to highlight positive developments in its financial management, the underlying reality of a substantial and growing debt burden cannot be ignored. The continued reliance on borrowing from multilateral institutions raises pertinent questions about the long-term sustainability of Nigeria’s public finances and its vulnerability to external economic shocks.

Analysts further observe that the economic headwinds facing Nigeria, including volatile oil prices and persistent inflationary pressures, further complicate the scenario. They further cautioned that without a significant boost in revenue generation and a concerted effort to curtail expenditure, the country risks becoming increasingly ensnared in a debt trap, where a huge portion of its earnings is consumed by debt servicing, leaving limited resources for crucial development needs.

As it stands, the international financial community will be closely watching how the Tinubu administration addresses these challenges. While the repayment of the IMF’s COVID-19 loan is considered a symbolic step in the right direction, it is generally seen as merely one small milestone on a long and arduous path towards achieving fiscal stability and sustainable economic growth for Nigeria.

Going forward, analysts assert that the true test will lie in the government’s ability to implement meaningful reforms that diversify the economy, enhance revenue collection, and ensure that future borrowing is strategically deployed to unlock long-term productivity.