Nigeria’s Public Debt/Debt Servicing, Fiscal Sustainability, Economic Implications and Policy Options

In a summarized perspective, Nigeria’s rising public debt has become one of the country’s most significant fiscal challenges. While the country’s debt-to-GDP ratio remains within internationally acceptable levels, the government’s limited revenue base has resulted in a disproportionately high debt service burden. More than half of federal government revenue is devoted to servicing debt, leaving limited resources for infrastructure development, healthcare, education, security, and other critical public services.

This policy brief examines Nigeria’s current debt profile, the mechanisms through which debt is serviced, the implications for the economy and citizens, and policy measures that can strengthen fiscal sustainability.

Nigeria’s Current Public Debt Profile: Nigeria’s total public debt, including obligations of the Federal Government, the 36 states and the Federal Capital Territory (FCT), is estimated at approximately ₦159.28 trillion (about US$111 billion).

The debt portfolio consists of:

• Domestic Debt: ₦84.85 trillion (53.27%)
• External Debt: ₦74.43 trillion (46.73%)

Although the debt stock continues to grow, international institutions generally consider Nigeria’s debt-to-GDP ratio to be moderate. However, the country’s primary challenge is not excessive borrowing relative to economic output, but insufficient government revenue, to comfortably meet debt obligations.

How Nigeria Services Its Public Debt: Nigeria services its debt through a structured repayment framework, coordinated by the Debt Management Office (DMO) in collaboration with the Central Bank of Nigeria (CBN). Debt repayments are made continuously throughout the year, rather than through a single annual payment.

Domestic Debt: the domestic debt consists primarily of the following profile – Federal Government Bonds, Treasury Bills, Sukuk Bonds and Savings Bonds. Interest payments are made quarterly or semi-annually, while principal repayments occur upon maturity, according to each instrument’s terms.

External Debt: External obligations include loans from the World Bank, African Development Bank (AfDB), China Exim Bank, Bilateral partners, Eurobond investors, etc. Repayments are generally scheduled quarterly, semi-annually, or according to negotiated loan agreements. The Federal Government has allocated approximately ₦15.9 trillion for debt servicing in the 2026 budget, representing one of the largest expenditure items.

Fiscal Implications of High Debt Servicing: Nigeria’s most pressing fiscal concern is its debt service-to-revenue ratio, estimated at 50 – 60%. This means that more than half of government revenue is used to meet debt obligations, before other public expenditures are financed. As such, the consequences include, reduced fiscal space for development projects; increased dependence on borrowing to finance budget deficits; limited investment in productive sectors; higher financing costs for future borrowing; and more… Although debt itself is not inherently harmful, excessive debt servicing limits the government’s capacity to stimulate economic growth.

Impact on the Nigerian Economy: Heavy debt servicing has wider macroeconomic implications. On another phase, it could breed reduced developmental capital investment. With substantial resources devoted to creditors, funding for roads, railways, power infrastructure, healthcare facilities, educational institutions, etc., becomes constrained.

Rising Borrowing Requirements: revenue shortfalls often compel the government to borrow additional funds, increasing the overall debt stock. Also, inflationary pressures could cause or drive persistent borrowing: and fiscal deficits may contribute to inflation, particularly when accompanied by monetary financing or exchange-rate depreciation.

Exchange Rate Vulnerability: External debt servicing requires foreign currency payments. As the naira depreciates, servicing dollar-denominated obligations becomes highly expensive, placing additional pressure on foreign exchange reserves.

Private Sector Crowding Out: Heavy domestic borrowing can reduce credit availability for private businesses, by increasing interest rates and directing financial resources toward government securities.

Effects on Nigerian Citizens: The impact of debt servicing extends beyond government finances and directly affects citizens.

Declining Public Services: Reduced fiscal capacity limits improvements in healthcare, education, transportation, water supply, and social welfare programmes.

Higher Cost of Living: Exchange-rate depreciation and inflation increase the prices of imported goods, food, fuel, and other essential commodities.

Slower Job Creation: Reduced public investment weakens economic expansion, limiting employment opportunities, particularly for young people.

Lower Standard of Living: As government spending shifts toward debt repayment rather than development, households experience reduced access to quality public services and infrastructure.

Structure of Nigeria’s External Debt: Nigeria’s external debt portfolio is diversified across several categories of creditors.

Multilateral Institutions: these include the World Bank, International Development Association (IDA), African Development Bank (AfDB) and International Monetary Fund (IMF). These loans generally offer relatively low interest rates and longer repayment periods.

Commercial Creditors: Eurobonds constitute a significant share of commercial borrowing. While they provide access to international capital markets, they carry higher interest rates and expose Nigeria to exchange-rate risk.

Bilateral Creditors: key bilateral lenders include China Exim Bank, France (AFD) and Germany. These loans are typically tied to infrastructure and development projects.

Policy Recommendations: to improve debt sustainability and reduce fiscal vulnerability, policymakers should pursue a comprehensive reform strategy such as, strengthening revenue generation through expanding the non-oil tax base; improve tax administration/compliance; promote non-oil exports; encourage industrialisation and manufacturing, etc. Some other policy suggestions would comprise – the following:

a)      Borrow More Prudently: New borrowing should prioritize projects capable of generating measurable economic returns and increasing future government revenue.

b)      Restructure Expensive Debt: Where feasible, refinance high-cost domestic debt with longer-term, lower-interest financing to reduce annual debt service obligations.

c)      Improve Public Financial Management: Enhance transparency, strengthen procurement systems, and improve monitoring of debt-financed projects to maximize value for money.

d)      Promote Economic Diversification: Reducing dependence on crude oil revenues through investment in agriculture, technology, mining, manufacturing, and services would strengthen fiscal resilience and reduce borrowing needs.

Nigeria’s debt-to-GDP ratio is estimated at between 32.3% and 52.9%, depending on the methodology used. The International Monetary Fund (IMF) places the ratio at 32.3%, whereas the domestic estimates that account for the rebased economy and higher public debt, put it between 50% and 52.9%.

Although these levels remain sketchily within internationally accepted sustainability thresholds, some analysts claim that Nigeria’s bigger challenge is its weak revenue base. In practical terms, the country may have a debt burden that appears manageable relative to the size of its economy, but government revenues remain too low to comfortably meet debt-servicing obligations and other fiscal commitments, which presents a serious fiscal challenge. So, the country’s debt problem is fundamentally a revenue problem, rather than simply a borrowing problem.

Addressing this challenge requires stronger domestic revenue mobilisation, prudent borrowing practices, disciplined fiscal management and sustained investment in productive sectors of the economy. If these reforms are implemented effectively, Nigeria can improve debt sustainability, create greater fiscal space for development and foster long-term economic growth, while enhancing the welfare of her citizens.