Uwaleke Prescribes Project-tied Sukuk to Build Public Trust in Government Borrowing

*Says Nigeria faces substantial future Eurobond repayment obligations

Ndubuisi Francis in Abuja

Amid the ongoing controversy over the federal government’s proposed $20.52 billion and €1.045 billion external borrowing, renowned professor of capital market, Prof. Uche Uwaleke has advised that rather than a complete resort to conventional loans, the federal government should undertake a serious assessment of the proportion of its proposed infrastructure financing that can be mobilised through international Sukuk.

He stated that one of Sukuk’s appeal lies in its potential to strengthen transparency and accountability in the utilisation of public borrowing.

He said the controversial $20.52 billion and €1.045 billion external borrowing move should provide an opportunity for a fundamental rethink of the country’s financing strategy.

In an article titled “Rebuilding Public Trust in Government Borrowing: The Case for Scaling Up Sukuk Financing in Nigeria,” Uwaleke said the recent request by President Bola Tinubu to the National Assembly for approval to raise $20.52 billion and €1.045 billion in fresh external loans had once again brought Nigeria’s growing public debt burden into sharp focus.

The financial expert who is also heads the Institute of Capital Market Studies (ICMS), Nasarawa State University, Keffi, explained that one of the principal reasons for public scepticism towards government borrowing was the perceived disconnect between the amounts borrowed and the infrastructure outcomes delivered.

Nigerians, he further argued, were increasingly concerned that governments accumulate enormous debt obligations without providing sufficient information about the projects financed, the amounts disbursed, the physical progress achieved and the economic returns generated.

This perception, he stressed, had weakened public confidence in borrowing as an instrument of development, adding that Sukuk can help change this narrative, provided that its project-linked features are supported by effective institutional and contractual safeguards.

Accordiing to him, although President Bola Tinubu had justified the proposed borrowing on the grounds of the country’s enormous infrastructure deficit and the need to finance critical projects across various sectors of the economy, the announcement had understandably generated considerable concern among Nigerians.

These concerns, he observed, cannot be dismissed as mere opposition to government borrowing, but must be viewed against the background of Nigeria’s debt accumulation over the past decade, the relatively limited visible impact of such borrowing on infrastructure development and the growing proportion of government revenue devoted to servicing existing debt. According to him, the fundamental question Nigerians were asking was whether borrowed funds are being efficiently deployed, transparently managed and translated into tangible developmental outcomes.

The one-time finance commisioner in Imo State noted that Nigeria’s public debt statistics provide sufficient grounds for this concern, adding that as at June 30, 2026, the country’s total public debt stood at ₦166.79 trillion, comprising domestic debt of ₦91.59 trillion, representing 54.91 per cent, and external debt of ₦75.20 trillion, equivalent to $54.52 billion, representing 45.09 per cent of the total.

This represents a phenomenal increase from the ₦11.24 trillion public debt stock recorded in December 2014, Uwaleke stated.

He further submitted that while part of this increase reflects naira devaluation, and the securitization of previously accumulated obligations, the scale of the expansion over a relatively short period raises legitimate questions about debt sustainability and the developmental returns on borrowed resources.

Uwaleke said,”More importantly, Nigeria’s debt challenge should not be assessed exclusively through the conventional debt-to-GDP ratio. Although this ratio may appear moderate by international standards, the more immediate fiscal constraint is the country’s capacity to generate sufficient revenue to service its obligations.

“Debt service has, in recent years, consumed an exceptionally high proportion of government revenue, averaging in excess of 70 per cent over the period under consideration. This leaves progressively less fiscal space for infrastructure, education, healthcare and other essential public services.

“The composition of Nigeria’s debt portfolio also raises important questions about the extent to which borrowing has been linked to productive investment. The Federal Government’s domestic debt stock outstanding by instruments as at June 30, 2026, stood at ₦86.99 trillion.

“Of this amount, discretionary FGN Bonds accounted for ₦64.84 trillion, representing 74.53 per cent of the total, including ₦22.11 trillion in securitized Ways and Means advances. By comparison, FGN Sukuk outstanding amounted to only ₦1.19 trillion, representing 1.37 per cent, while FGN Green Bonds accounted for a mere ₦47.36 billion, or 0.05 per cent.

“The overwhelming dominance of conventional government securities, particularly instruments that are not necessarily tied to specific infrastructure projects, contrasts sharply with the relatively insignificant contribution of instruments specifically designed to finance identifiable developmental investments. “This is not to suggest that all conventional government bonds are unproductive or that their proceeds cannot finance capital expenditure. Rather, it highlights the need to rebalance the debt portfolio towards financing instruments that establish a clearer connection between borrowed funds and identifiable development projects.

“The external debt portfolio presents a related challenge. Of Nigeria’s external debt stock of $54.52 billion, Eurobonds account for a significant proportion, amounting to about $18.55 billion. Although Eurobonds provide access to international capital markets and can help diversify the sources of government financing, they are generally not structured around specific infrastructure assets or projects.

“Their proceeds may be applied to broad budgetary purposes, depending on the terms of the issuance and the government’s stated financing objectives,” he said.

Nigeria faces substantial future eurobond repayment obligations

He added Nigeria faces substantial future Eurobond repayment obligations.

“The outstanding repayment schedule includes a $1.5 billion bullet repayment falling due in November 2027, followed by significant annual maturities from 2028 through 2034, before repayments resume in 2036 and continue into 2051.

“These obligations underscore the importance of carefully managing the country’s refinancing and foreign exchange risks. They also reinforce the need to reconsider the composition and structure of future external borrowing rather than continually relying on conventional debt instruments without sufficient attention to the developmental use of their proceeds.

“It is against this background that greater consideration should be given to Sukuk as an alternative and complementary instrument for financing Nigeria’s infrastructure requirements.”

He noted that a properly structured Sukuk provides an opportunity to link the raising of funds to clearly identified assets and development projects, thereby creating a financing framework in which the purpose of borrowing is more transparent and the application of proceeds can be more effectively monitored.

“This makes Sukuk particularly relevant to a country seeking to address a significant infrastructure deficit while simultaneously rebuilding public confidence in government borrowing,” he said.

Sukuk is a Shariah-compliant collective investment scheme that pools money from investors to buy a portfolio of Sukuk (often called Islamic bonds) and other permissible Islamic financial assets, and represents undivided ownership in tangible assets, projects, or services.

The federal government introduced its Sovereign Sukuk programme in 2017, and successive issuances have been deployed principally towards the construction and rehabilitation of federal roads across the six geopolitical zones and the Federal Capital Territory.

Uwaleke observed that the programme has demonstrated that Sukuk can mobilise substantial domestic financial resources for identifiable infrastructure projects, argukng that the results achieved through the federal government’s existing Sukuk programme provide an important basis for scaling up its use.

“The roads financed through successive issuances demonstrate the practical connection that can be established between public borrowing and physical infrastructure delivery.

“However, with outstanding Federal Government Sukuk accounting for only about 1.37 per cent of the domestic debt portfolio, its current scale remains too small to make a transformational impact on the country’s infrastructure deficit,” Uwaleke who is also the President of Capital Market Academics of Nigeria (CMAN) said