The Nigerian Federal Government in March 2025 settled a staggering N611.71 billion as settlement for its first domestic-denominated US dollar bond, illustrating the pure fiscal strain that lies with foreign currency obligations despite their domestic raising.
The single settlement was in the form of the highest domestic debt service of the month, highlighting the added burden that FX-denominated debt poses on Nigeria’s overall financial sector.
The Debt Management Office (DMO) explained that the repayment made up nearly half (47.05 percent) of the entire N1.3 trillion of domestic debt servicing for the month of March alone, and nearly one-quarter (23.44 percent) of the N2.61 trillion allocated to debt service for the entire first quarter of 2025.
The dollar bond in question was debuted in August 2024 under a $2 billion Domestic FGN USD Bond Programme. It raised over $900 million from Nigerian investors and was listed 180 percent above its target, winning accolades like the “West Africa Deal of the Year.” It was dual-listed on the Nigerian Exchange (NGX) and the FMDQ Exchange simultaneously, and at first it was embraced as a milestone event to deepen local financial markets and attract dollar-holding investors without exposing them to unpredictable global capital markets.
However, the latest payment amounts are dismal. The DMO said a $44.97 million interest payment due March 6 was exchanged at the official exchange rate of N1,511.80 to the dollar and came out to approximately N67.99 billion. But the aggregate amount of debt service was N611.71 billion, that is, the Federal Government paid interest as well as repaid some of the principal in the bond, which is valued at N543.72 billion, just seven months after the bond was floated.
This premature payment, though unsubsidized, indicates enormous funding responsibility, particularly in Nigeria’s falling currency environment. By March 2025, outstanding bonds worth reduced from N1.47 trillion to N1.41 trillion, decreasing its portion of total domestic debt from 2.12 percent to 1.88 percent. Although the bond was registered locally, that it is denominated in US dollars implies every drop in the naira raises the weight of repayment, boosting Nigeria’s debt burden without fresh foreign borrowing.
What began as a tactical attempt to diversify away from Eurobonds and offer dollar-loaded investors a tax haven has now rung fiscal warning bells. It cost over twice as much to service this single instrument in March as it did to service all other domestic debt instruments combined.
This has revived the issues with FX-denominated lending, even domestic. The rise in dollar-denominated bond repayment in naira highlights the riskiness of Nigeria’s debt pool to exchange rate shocks. With the naira still quoted above N1,500 per unit of dollar, economists are sounding the warning that such instruments would be a drain on the national coffers if the exchange rate is allowed to keep running in circles.
The March 2025 repayment is the watershed that indicates that, while innovative sovereign financing should be welcomed, it must be approached with caution in a turbulent macroeconomic environment.
