DMO explains exclusion of ‘principal repayments’ in 2025 domestic debt service budget

These claims stem from the exclusion of principal repayments, particularly for local debt borrowings, in the proposed 2025 budget.

However, in a discussion with Naijaonpoint, sources at the Debt Management Office (DMO) clarified that this is standard debt management practice and not an indication of financial distress.

The DMO explained that Nigeria’s domestic debt servicing strategy focuses on budgeting for interest payments—the cost of borrowing—rather than the repayment of principal.

This approach, commonly referred to as “rollover,” has been the norm since the agency’s establishment in 2000 and is a globally accepted practice for managing public debt.

The DMO emphasized that the budgetary provision for domestic debt servicing includes only interest payments—such as the discount on treasury bills or the semi-annual coupon payments on bonds like Sukuk or Green Bonds.

This deliberate separation ensures that promissory notes are settled without issuing new debt.

The DMO further explained that external debt servicing operates on a similar principle but with added complexities.

External debt includes interest, commitment fees (for unused portions of loans), and service charges, as well as amortizations, which are gradual repayments of the principal.

For the 2025 budget, Nigeria has included full principal repayments for a $1 billion Eurobond maturing in November 2025 and another $1.25 billion Eurobond due the same year.

The DMO noted that while these amounts are reflected in the budget, the government could also refinance them.

Addressing concerns about the size of Nigeria’s debt servicing costs, the DMO noted that this is a natural consequence of growing debt stock.

As the government borrows more—whether through concessional loans or commercial debt—servicing costs inevitably increase.

This is not unique to Nigeria but is standard for any country managing significant debt obligations.

The DMO clarified that the exclusion of principal repayments from the 2025 budget for domestic debt is a deliberate and efficient debt management strategy.

Despite the concerns, Nigeria’s approach to managing its debt obligations reflects a structured and sustainable plan that aligns with global standards.

Despite the concerns, Nigeria’s approach to managing its debt obligations reflects a structured and sustainable plan that aligns with global standards.