Despite the Federal Government’s continued defence of its borrowing, Nigeria is actually heading in the wrong direction if the trend persists, with the country facing the prospect of spending nearly three-quarters of its revenue on debt servicing by the end of the decade.
According to the Debt Management Office (DMO), Nigeria’s debt service-to-revenue ratio would exceed its self-imposed 50 per cent limit in the coming years, raising fresh concerns about the country’s fiscal position and its ability to finance critical development projects.
The DMO projected that the debt service-to-revenue ratio would rise to 71.7 per cent by 2030. The ratio, which stood at 60.6 per cent in 2024, is expected to decline to 44.9 per cent in 2025 before climbing to 51 per cent in 2026, 57.1 per cent in 2027, 57.4 per cent in 2028 and 67.3 per cent in 2029.
The projections are contained in the DMO’s 2024 Debt Sustainability Analysis (DSA) report, which assessed Nigeria’s capacity to meet its current and future debt obligations amid weak revenue generation, inflation, naira depreciation and rising financing needs.
The report presents an uncomfortable outlook for an economy that has continued to rely on borrowing to finance budget deficits and meet government obligations, despite repeated assurances that the country’s debt stock remains within internationally accepted limits.
The office warned that debt servicing was growing faster than government revenue, leaving the country with limited fiscal space to finance other obligations.
“This ratio is high and the fiscal space available to the Government is limited,” the report said.
The implication is that as a larger proportion of government revenue goes towards interest payments and repayment obligations, less money will be available for infrastructure, healthcare, education, security, social protection and other public services.
Although the Federal Government may continue to access domestic and international debt markets, the DMO’s projections suggest that the central challenge is no longer simply how much Nigeria owes, but whether its revenue base can adequately support the cost of servicing those obligations.
Under a shock scenario involving weaker economic conditions and declining revenue mobilisation, the debt service burden could rise sharply, reaching 89.6 per cent in 2029 and 97.3 per cent by 2030.
This would mean that almost the entire revenue available to the Federal Government could be required to meet debt service obligations, leaving extremely limited resources for other expenditure.
The DMO said the worsening ratio under the shock scenario would further constrain government finances, stressing the need to reduce the debt service burden.
The report identified the increasing pressure of debt servicing on government revenue as a major threat to debt sustainability.
Despite the rising debt service burden, the DMO projected a significant decline in Nigeria’s public debt-to-GDP ratio under its baseline scenario.
The ratio is expected to fall from 53.7 per cent in 2024 to 36.9 per cent in 2025, 33.3 per cent in 2026 and 31.3 per cent in 2027.
It is projected to decline further to 29.7 per cent in 2028, 28.4 per cent in 2029 and 27.3 per cent in 2030.
Under the shock scenario, the debt-to-GDP ratio is projected to rise to 39.4 per cent in 2026 and 38.7 per cent in 2027 before declining gradually to 34.6 per cent by 2030.
The DMO said the projected ratios remained below Nigeria’s recommended 60 per cent threshold under the Medium-Term Debt Management Strategy 2024-2027 and the 70 per cent benchmark under the IMF-World Bank Market Access Country Debt Sustainability Analysis framework.
However, the contrasting projections of a declining debt-to-GDP ratio and a rising debt service-to-revenue ratio underline an important weakness in assessing Nigeria’s debt position.
A country may have a relatively moderate debt stock compared with the size of its economy and still struggle to meet its repayment obligations if government revenue remains inadequate.
This is particularly significant for Nigeria, where the government’s revenue generation capacity has remained a longstanding fiscal challenge. The country’s dependence on oil receipts, exposure to fluctuations in international crude prices, revenue leakages and a relatively narrow tax base have continued to limit the resources available to fund public expenditure.
The baseline projections assume an exchange rate of N1,500 to the dollar, real GDP growth of 4.8 per cent and a primary balance of 3.8 per cent.
The shock scenario, however, assumes a 30 per cent depreciation of the naira, weaker real GDP growth and a 2.3 per cent decline in revenue.
These assumptions highlight the sensitivity of Nigeria’s debt position to movements in the foreign exchange market and changes in economic performance. A weaker naira could increase the domestic currency value of external debt, while slower economic growth and falling revenue would make it more difficult for the government to meet its obligations without additional borrowing.
According to the report, Nigeria’s debt-to-GDP ratio stood at 53.72 per cent as of December 31, 2024, below the 70 per cent benchmark for emerging markets under the MAC-DSA framework.
The gross financing needs-to-GDP ratio was also 3.2 per cent, below the 15 per cent threshold.
However, the DMO identified financing, refinancing and foreign exchange risks as major threats to the country’s debt outlook.
The refinancing risk is particularly important because the government must continually manage maturing obligations, interest costs and the availability of funds to meet repayment deadlines. Heavy reliance on short-term or relatively expensive domestic borrowing could further increase pressure on the budget.
To address the growing debt burden, the DMO recommended increased revenue mobilisation through tax reforms, improved public expenditure efficiency and a reduction in new borrowings.
It also urged the government to leverage public-private partnerships (PPPs) to finance capital projects, rather than depending excessively on loans to fund infrastructure and other development programmes.
The recommendation reflects the need for the private sector to play a greater role in financing infrastructure, particularly in areas where commercially viable projects can attract private investment without placing additional pressure on public finances.
The office further called for strict compliance with the provisions of the Fiscal Responsibility Act and the Central Bank of Nigeria Act on Ways and Means Advances, which provide the framework for government borrowing from the apex bank.
The DMO also recommended the privatisation or sale of government assets and increased reliance on concessional financing where available.
Concessional loans, which generally carry lower interest rates and longer repayment periods than commercial borrowing, could help reduce the cost of financing government projects, particularly when directed towards productive investments.
It said fiscal consolidation, tax reforms, improved spending efficiency and exchange rate management would be critical to moderating the debt-to-GDP and debt service-to-revenue ratios.
“Overall, the sustainability of public debt remains moderate, but highly vulnerable to weak revenue mobilisation, exchange rate devaluation and global uncertainties,” the DMO said.
The report also urged the government to sustain the removal of the Premium Motor Spirit subsidy and the adoption of a unified and flexible exchange rate, noting that both measures had helped improve revenue.
It advised the government to expand the tax base, improve compliance through technology and prioritise public spending on investments capable of boosting revenue and economic growth.
However, the recommendations come against the backdrop of continuing debate over the economic consequences of the government’s fiscal reforms and the extent to which additional revenue generated from them is translating into improved public finances.
While subsidy removal and exchange rate reforms have been defended as necessary measures to eliminate distortions and improve government revenue, their effects on household purchasing power and business operating costs have also remained major concerns.
The challenge for the government is therefore to ensure that the additional revenue generated from these reforms is not swallowed by recurrent expenditure and debt obligations but deployed towards productive investments capable of expanding the economy and creating more revenue.
Nigeria’s borrowing profile has also attracted attention because of the growing cost of domestic debt. Although domestic borrowing provides the government with access to funds in the local currency, the interest payments associated with treasury bills and government bonds constitute a substantial claim on public revenue.
The country’s external debt, on the other hand, exposes public finances to exchange rate movements, particularly when the naira depreciates against major international currencies.
Nigeria’s total public debt stood at N133.33 trillion as of December 31, 2024, according to the figure cited in the DSA report, with market-based debt accounting for 69.06 per cent and non-market-based debt representing 30.94 per cent.
The DMO’s separately published public debt stock report, however, put total public debt at N144.67 trillion for the same date, comprising domestic and external obligations of the Federal Government, state governments and the Federal Capital Territory. The difference in the reported figures underscores the need to distinguish the debt measures and coverage used in the respective publications.
Ultimately, the DMO’s projections raise questions about the sustainability of a fiscal strategy that continues to depend heavily on borrowing while government revenue remains relatively weak.
Although the projected decline in the debt-to-GDP ratio may provide some comfort, the rising debt service-to-revenue ratio presents a more immediate concern for the country’s capacity to fund development.
For an economy with substantial infrastructure deficits, high unemployment and widespread poverty, the prospect of allocating more than 70 per cent of government revenue to debt servicing by 2030 is particularly troubling.
The warning is that Nigeria’s debt challenge cannot be addressed simply by keeping the debt stock below international benchmarks. Without a substantial improvement in revenue generation, better management of public expenditure and greater discipline in borrowing, the country could find itself with an increasingly large debt burden and insufficient resources to meet the needs of its citizens.
