Nigeria and the Debt Sustainability Question

Does Nigeria have sufficient fiscal space to take on more debt, or is the country edging towards a debt trap? These questions have once again come to the fore following President Bola Tinubu’s request to the National Assembly to approve a supplementary external borrowing plan of $20.52 billion and €1.045 billion to finance projects and programmes across critical sectors of the economy.
The proposal has sparked a fresh debate over Nigeria’s debt sustainability with the opposition raising concerns about the implications of further borrowing for the country’s already stretched public finances.

The President said the proposed facilities would address Nigeria’s infrastructure deficit, accelerate economic growth, generate employment and improve the living conditions of Nigerians. In a letter read by Senate President Godswill Akpabio, Tinubu urged the National Assembly to approve the supplementary external borrowing plan for 2026–2027 to enable the federal government to implement its projects and programmes without delay.

Defending the rationale for the request, the President, in an explanation further reinforced by the Minister of Finance and Coordinating Minister of the Economy the following day, stressed that the need to sustain economic growth following the implementation of his administration’s reforms had made additional external financing necessary.

If the entire proposed borrowing plan is approved and the facilities fully drawn, it could significantly increase Nigeria’s total debt stock to about N200 trillion and further raise the country’s debt-service obligations in the coming years.

However, the Presidency did not provide sufficient details of the proposed facilities to enable Nigerians understand their composition, particularly the proportion expected to come from commercial lenders and multilateral development institutions. This is because commercial loans generally attract higher interest rates, which could be around eight per cent or more, depending on the terms, in addition to associated charges and fees.

In its 2026 Article IV Consultation Report on Nigeria, the International Monetary Fund (IMF) estimated that interest payments would absorb 53.2 per cent of federal government revenue in 2025 and rise to 53.7 per cent in 2026. This underscores the persistent pressure of debt servicing on government finances, despite the projected moderation in the debt-to-GDP ratio. The Washington-based multilateral institution projected that Nigeria’s public gross debt would rise to 36.7 per cent of GDP in 2027, while foreign exchange-denominated debt would increase from 16.9 per cent of GDP in 2025 to 17.2 per cent in 2026 and 19.1 per cent in 2027, indicating growing exposure to exchange-rate risks. The IMF also warned that weak revenue mobilisation, rising financing needs, contingent liabilities and large future repayment obligations could increase sovereign risks.

The implication for debt sustainability is that Nigeria is already facing considerable debt-service pressure, and additional borrowing will increase the interest obligations that must be met from future government revenue. With more than half of federal government revenue already projected to go towards interest payments, further borrowing will leave the government with even less fiscal space to fund essential services and development priorities.

Additionally, the proposed borrowing exposes the country to greater foreign exchange risk. Since the facilities are denominated in foreign currencies, they will increase Nigeria’s exposure to exchange-rate movements. Any significant depreciation of the naira could raise the domestic-currency cost of servicing and repaying the loans, putting further pressure on government finances.

The borrowing also increases the country’s refinancing and repayment risks, particularly given its existing debt redemption profile. Nigeria faces substantial commercial debt repayments in 2027 and 2028, including obligations that require the principal to be repaid in lump sums. Unfortunately, the country does not appear to have a sinking fund to cushion the pressure of these bullet repayments. A sinking fund allows the government to set aside money periodically towards the repayment of debt as it falls due, rather than having to mobilise the entire amount at once.

While Nigeria’s debt-to-GDP ratio remains within a range that may appear manageable, GDP is not the revenue available to government for debt repayment. A significant portion of Nigeria’s GDP is driven by consumption rather than productive activities that generate sufficient government revenue. Consequently, a relatively low debt-to-GDP ratio does not necessarily provide a complete picture of the country’s fiscal stress. The debt-service-to-revenue ratio is a more revealing indicator of the government’s capacity to meet its obligations because it shows how much of the revenue actually available to government is being committed to debt servicing.

Similarly, while the government has said the fresh borrowing request is intended to finance infrastructure, the development impact of such investments will depend largely on the quality, viability and execution of the projects. This is because even infrastructure projects with strong economic returns do not automatically translate into immediate government cash flow.

Therefore, the Patience Oniha-led Debt Management Office (DMO) should be compelled to provide regular disclosures of the country’s debt redemption profile, particularly principal repayments on commercial borrowings, many of which are structured as bullet repayments. Also, the DMO should be encouraged to publish an updated debt sustainability analysis that provides a clear picture of Nigeria’s debt redemption profile, gross financing needs, projected debt-service obligations and exposure to foreign exchange and refinancing risks. Such transparency would help the National Assembly and the public TO assess the country’s actual borrowing capacity before further commitments are made.

Nigeria’s public debt debate must move beyond the size of the borrowing to the capacity to repay as borrowing without stronger revenue mobilisation, prudent debt management and clear repayment plans can become a heavy burden on future generations.