Debt Service Could Consume 72% Of Federal Govt Revenue By 2030 – DMO

Nigeria’s debt burden could become increasingly difficult to manage as debt servicing is projected to consume more than 70 per cent of the Federal Government’s revenue by 2030, raising concerns over the country’s shrinking fiscal space and capacity to finance development projects.

The Debt Management Office (DMO), in its 2024 Debt Sustainability Analysis (DSA), warned that although Nigeria’s public debt remains sustainable at a moderate level, the country is highly vulnerable to weak revenue mobilisation, exchange rate depreciation and global economic uncertainties.

The report projected that the Federal Government’s debt service-to-revenue ratio, which stood at 60.55 per cent in 2024, would rise to 71.7 per cent by 2030 under the baseline scenario, exceeding the 50 per cent self-imposed limit adopted in the assessment.

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Under a more adverse economic scenario involving exchange rate depreciation, weaker economic growth and declining revenue, the DMO analysis showed that the ratio could climb to 97.3 per cent by 2030, leaving the government with significantly less revenue for infrastructure, social services and other development priorities.

“The rise in this ratio is due to the fact that the rate of growth in Debt Service is higher than rate of growth of Revenue. This ratio is high and the fiscal space available to the Government is limited. In the Shock Scenario, shortfall in domestic revenue mobilisation would push further the ratio from 57.4 per cent in 2026 to 97.7 per cent in 2030.

“Thus, fiscal space is further reduced and the ratio needs to be brought down. The two scenarios show a threat to debt sustainability, due to increasing pressure on Government Revenue relative to Debt Service.”

The DMO attributed the worsening outlook to debt servicing growing faster than government revenue, warning that the pressure on public finances could threaten debt sustainability if the country fails to strengthen revenue generation.

The report further showed that the debt service burden would rise above the 50 per cent limit from 2026, reaching 51 per cent in that year, 57.1 per cent in 2027 and 67.3 per cent in 2028 before climbing further.

The DMO said the increase reflects the faster growth in debt service obligations relative to government revenue, adding that the trend would further constrain the government’s ability to meet other expenditure obligations.

Nigeria’s total public debt stood at N144.67 trillion as of December 31, 2024, up from N27.40 trillion in 2019 and currently stands at N166.788 trillion as of June 2026. The debt stock covers the domestic and external obligations of the Federal Government, 36 states and the Federal Capital Territory.

The debt-to-GDP ratio also increased significantly to 53.72 per cent in 2024 from 19 per cent in 2019, reflecting sustained government borrowing to finance budget deficits, the securitisation of Ways and Means Advances and the impact of naira depreciation on external debt.

According to the report, the Federal Government’s debt service obligations increased to N12.62 trillion in 2024 from N7.53 trillion in 2023, while revenue rose to N20.84 trillion from N11.74 trillion during the same period.

Despite the increase in debt servicing, the ratio of debt service to government revenue declined to 60.55 per cent in 2024 from 64.14 per cent in 2023, supported by improved revenue collection following the removal of petrol subsidy, exchange rate unification and better management of revenue remittances from government-owned enterprises.

However, the DMO identified significant vulnerabilities in Nigeria’s debt profile, particularly the rising cost of new borrowing, refinancing pressures and exposure to foreign exchange risks.

It classified Nigeria’s financing risk as high, with the average bond spread at 976 basis points, above the 600 basis points threshold under the International Monetary Fund and World Bank Debt Sustainability Analysis framework.

Refinancing risk was also rated high, as the annual change in the share of short-term debt to total public debt stood at 1.8, above the threshold of 1.0. Similarly, public debt held by non-residents accounted for 49 per cent of total debt, exceeding the 45 per cent threshold and exposing the country to foreign exchange and market sentiment risks.

The report, however, classified foreign currency-denominated debt risk as moderate, with such debt accounting for 50 per cent of total public debt, below the 60 per cent threshold. “The Eurobond Bond (7.375% US$1.5 billion September 2033) average spread of 975.58 basis points (from October 02, 2024 through December 31, 2024) exceeded its threshold of 600 basis points, which reflect increase in yield, indicating an increase in the cost of new borrowings.

“The annual change in the proportion of Short-Term Debt in the Total Public Debt at 1.8 is higher than its threshold of 1.0 percent, due to more issuance of short-term debt (NTBs), suggesting an element of refinancing risk. The Exchange risk exposure increased as the share of Debt held by Non-Residents at 49 percent exceeds the threshold of 45 percent, while the share of Debt denominated in foreign currency is within its threshold of 60 percent.”

Under its stress test, which considered adverse movements in exchange rates, inflation, interest rates, economic growth and primary balance, the DMO projected that the debt-to-GDP ratio could rise to 47 per cent in 2027, compared with 38.2 per cent under the baseline scenario.

Debt service-to-revenue could also increase to 70.6 per cent in 2027 under the stress scenario, significantly above the 50 per cent limit.

The DMO warned that the country’s debt trajectory could exceed the 70 per cent high-risk benchmark under unfavourable macroeconomic conditions, particularly if economic growth weakens and borrowing costs rise.

To address the vulnerabilities, the office recommended stronger revenue mobilisation through tax reforms, expansion of the tax base, improved compliance and the use of technology to strengthen tax administration.

It also called for greater efficiency in public expenditure, urging the government to channel resources towards growth-enhancing investments capable of expanding the economy and generating additional revenue.

The DMO further recommended reducing new borrowing by financing capital projects through public-private partnerships, complying with the Fiscal Responsibility Act and provisions of the CBN Act on Ways and Means Advances.

It also urged the government to consider privatisation or the sale of government assets while relying more on concessional financing when available.

The office said sustaining the removal of petrol subsidy and the adoption of a unified and flexible exchange rate regime would remain important to improving government revenue and moderating debt sustainability risks.