The Federal Government of Nigeria spent a staggering ₦611.71 billion in March 2025 to service its first-ever dollar-denominated bond issued within the domestic market, making it the single largest item in Nigeria’s domestic debt service for the month. This was revealed in the latest report released by the Debt Management Office (DMO), detailing actual domestic debt servicing for the first quarter of the year.
According to the report, the March repayment alone accounted for 47.05 percent of the ₦1.3 trillion spent on all domestic debt servicing for that month, and 23.44 percent of the ₦2.61 trillion total spent throughout Q1 2025. The size of the payment has drawn attention to Nigeria’s increasing reliance on foreign exchange-linked borrowing and the impact of a weak naira on government obligations.
The dollar-denominated bond, which was launched in August 2024 under the $2 billion Domestic FGN USD Bond Programme, had attracted over $900 million from local investors at inception. It became the first of its kind in Nigeria, offering a foreign currency investment option locally without going to the international Eurobond market. The issuance was heavily oversubscribed—180 percent—and was later listed on both the Nigerian Exchange (NGX) and FMDQ Exchange. The deal also received accolades, including being named “West Africa Deal of the Year.”
In March, the DMO disclosed that an interest payment of $44.97 million was due on the bond. Converted at the official exchange rate of ₦1,511.80 per dollar, this equals approximately ₦67.99 billion. However, the actual amount reported for servicing the bond in March was ₦611.71 billion. This difference suggests that the government may have also paid back a significant portion of the bond’s principal—estimated at ₦543.72 billion—within the same month, not just the interest. If accurate, this would mark a substantial early principal repayment, just seven months after the bond was issued.
As of September 30, 2024, the dollar bond had added ₦1.47 trillion to Nigeria’s domestic debt stock of ₦69.22 trillion, accounting for about 2.12 percent of the total. By March 31, 2025, the outstanding balance had reduced to ₦1.41 trillion, now representing 1.88 percent of the revised domestic debt stock of ₦74.89 trillion.
While the bond has helped deepen Nigeria’s capital markets by creating a new investment outlet for local dollar-holding entities like exporters, oil and gas firms, and institutional investors, it also brings fresh challenges. Being dollar-denominated means that even though the bond was issued locally, it carries high exposure to foreign exchange risk. When the naira weakens, the cost of repaying these bonds increases significantly in naira terms.
With the naira currently trading above ₦1,500 to the dollar, the burden of servicing FX-linked debt instruments like this bond has grown sharply. Analysts warn that this could further widen Nigeria’s fiscal deficit, especially if currency volatility continues and inflation remains high.
The cost of servicing this single dollar bond in March 2025 overshadowed interest payments on most other domestic debt instruments such as Federal Government Bonds, Nigerian Treasury Bills, and Sukuk. This has raised questions about the sustainability of such instruments in Nigeria’s debt strategy, especially given the pressure on foreign exchange reserves and a rising public debt profile.
The dollar bond was introduced as a means for the Federal Government to raise foreign exchange without relying on unpredictable global capital markets. It was also positioned as a tax-free and safe investment option to attract domestic dollar liquidity. However, the heavy repayment burden seen in March has prompted experts to call for a more cautious approach in adopting such instruments.
Critics argue that while these bonds may help reduce the need for Eurobond issuances, they also worsen exchange rate vulnerabilities and could destabilise fiscal planning if naira depreciation persists. The DMO has so far not provided further clarification on whether the principal repayment was part of a deliberate early debt reduction strategy or if it was triggered by investor terms.
Economists are now urging the government to re-evaluate its borrowing mix and prioritise instruments that limit currency exposure. They also recommend improving domestic revenue generation, especially through non-oil exports, to reduce dependence on FX-denominated loans.
As Nigeria continues to navigate economic recovery, rising inflation, and naira instability, the March debt service figure has renewed conversations around debt sustainability, prudent borrowing, and the long-term implications of issuing foreign currency debt—even within local borders.
