Nigeria’s rising debt profile has become a pressing economic concern that threatens the nation’s fiscal stability, future growth, and well-being of its citizens. As the country continues to borrow to fund its budget deficits, address security challenges, and finance infrastructure projects, its debt burden has increased substantially. While borrowing can be a useful tool for development, Nigeria’s current debt trajectory poses serious risks to economic stability and growth if not managed carefully. Urgent action and prudent fiscal policies are needed to address this debt crisis before it spirals out of control.
Of concern is the fact that even after the removal of fuel subsidies 17 months ago, which was supposed to depend less on debt for social and economic development, Nigeria continued to borrow trillions of naira since then.
The primary danger of Nigeria’s debt burden lies in the sheer scale of its growth over the past decade. As of the second quarter of 2024, Nigeria’s public debt was N134.3 trillion ($91.3 billion), which is a 10.35 percent increase from the first quarter.
Much of this debt is external, denominated in foreign currencies, which exposes the country to exchange rate fluctuations. As the naira has weakened against the dollar and other major currencies, the cost of servicing this debt has soared, consuming an increasing portion of government revenue. Current estimates suggest that Nigeria now spends about 70 per cent of its revenue on debt servicing alone, leaving minimal resources for critical expenditures on health, education, and infrastructure. This unsustainable debt service-to-revenue ratio is choking public finances and hindering the country’s ability to invest in areas that drive long-term economic growth.
The growing debt burden also places significant strain on Nigeria’s ability to respond to economic shocks. With much of its revenue tied up in debt servicing, Nigeria lacks the fiscal flexibility to address crises such as oil price volatility, which has a profound impact on the economy given the country’s reliance on oil exports. If oil prices drop or economic conditions worsen, Nigeria’s revenue could decline, forcing the government to borrow even more to meet its obligations. This debt dependency creates a vicious cycle that risks plunging the country into a debt trap. Should Nigeria default on its debt or need to restructure, it would face higher borrowing costs and risk losing investor confidence, which could further destabilise the economy and make recovery even more challenging.
Beyond these immediate fiscal concerns, the debt profile also endangers Nigeria’s economic growth potential. Excessive debt servicing limits the government’s ability to invest in infrastructure, human capital, and social services—investments that are essential for economic progress. Underfunded health and education systems leave Nigeria’s workforce less competitive, while insufficient infrastructure stifles industrialisation, entrepreneurship, and productivity. Over the long term, this limited investment in critical sectors hampers economic diversification and reduces opportunities for young Nigerians. A large, unproductive debt burden effectively mortgages the future, leaving the next generation to shoulder the costs of today’s excessive borrowing.
Nigeria’s increasing debt profile also threatens social stability. High debt burdens typically lead governments to implement austerity measures to cut spending and generate revenue. In Nigeria, austerity could mean cuts to subsidies, reduction of social programmes, and increased taxation. Such measures could increase poverty rates, worsen income inequality, and lead to public dissatisfaction, potentially sparking social unrest. With poverty and unemployment already at high levels, additional economic strain could create a volatile social environment that poses risks for governance and national cohesion.
Moreover, the sources of Nigeria’s debt have shifted in recent years, raising further concerns. A growing portion of Nigeria’s debt is now sourced from commercial loans and Eurobonds, which come with higher interest rates and shorter repayment periods than concessional loans from multilateral organisations like the World Bank. Commercial loans, though helpful in the short term, are expensive and can lead to repayment challenges in the medium term, especially in a country facing fiscal constraints. As repayment deadlines loom, Nigeria may find itself increasingly at the mercy of international creditors, diminishing its economic sovereignty and bargaining power.
To address these challenges, Nigeria must adopt a proactive and disciplined approach to debt management. First, the government should prioritize revenue generation and diversification. Nigeria’s revenue-to-GDP ratio remains one of the lowest in the world, largely because of its dependence on oil revenue. Broadening the tax base, improving tax compliance, and tapping into new revenue streams through the expansion of non-oil sectors could help reduce the need for borrowing. Additionally, improving efficiency in public spending can ensure that borrowed funds are used effectively, reducing waste and preventing corruption. Investments in infrastructure, education, and healthcare should be prioritised to maximise the economic return on public expenditures.
