Daniel Otera
Nigeria’s economy, Africa’s largest by several metrics, has long balanced ambition with austerity. With a population exceeding 220 million and aspirations for middle-income status, the country regularly turns to external borrowing to fund infrastructure, social programs, and economic stabilization. However, each new tranche of loans raises a familiar debate: Are these funds enablers of growth, or do they risk creating chains that will bind future generations? The recent approval of a $4.37 billion borrowing package including fresh loans, bond refinancings, and innovative Islamic finance mechanisms illustrates this ongoing tension. Far from an isolated event, it underscores a structural reliance on debt amidst volatile oil revenues, naira depreciation, and broader global economic challenges.
Since Nigeria transitioned to civilian governance in 1999, public debt has grown dramatically, mirroring trends in other emerging markets but amplified by domestic shocks like oil price fluctuations and the COVID-19 pandemic. According to the Debt Management Office (DMO), Nigeria’s total public debt has surged from ₦3.55 trillion in 1999 to over ₦149.3 trillion (approximately $97.32 billion) by March 2025. This represents a compound annual growth rate (CAGR) of over 15%, signaling the rapid expansion of the country’s debt in the last 25 years.
The growth of Nigeria’s external debt has been especially pronounced. In 2000, the external debt was $12 billion, but by 2022, it had risen to $103.1 billion, driven by international borrowing, global economic conditions, and infrastructure financing needs. Through various refinancing initiatives, the external debt is projected to stabilize at around $99.7 billion by mid-2025, reflecting the government’s efforts to manage its debt profile more sustainably.
This focus on external debt reflects the government’s broader strategy to avoid a scenario where the country’s debt obligations exceed its repayment capacity, thereby threatening economic stability. As of mid-2025, despite the rise in external debt, Nigeria has made progress in stabilizing this aspect of its public finances.
Nigeria’s debt trajectory has been shaped by varying fiscal philosophies and macroeconomic conditions. Early years in the Fourth Republic, under President Olusegun Obasanjo, saw a focus on debt reduction. At the time, Nigeria’s external debt was overwhelming, and by 2007, it stood at ₦2.6 trillion. Obasanjo’s government employed a cautious approach, including negotiations with the Paris Club of creditors that resulted in $18 billion of debt forgiveness in 2005, reducing Nigeria’s external debt from $28 billion to approximately $2.1 billion.
During the Obasanjo years, oil windfalls were primarily directed toward debt servicing, keeping the debt-to-GDP ratio below 20%. This careful fiscal management helped reset Nigeria’s debt trajectory but highlighted the need for long-term diversification beyond oil.
In contrast, during the administrations of Presidents Umaru Musa Yar’Adua and Goodluck Jonathan, Nigeria shifted toward more expansionary fiscal policies. Between 2007 and 2015, national debt grew from ₦12.6 trillion to ₦27.7 trillion—an 866% increase from the end of Obasanjo’s tenure. Several factors contributed to this rapid rise:
The Global Financial Crisis (2008–2009) prompted government bailouts, particularly in the power sector.
The introduction of external borrowing through Eurobonds increased the debt stock.
Rising fiscal pressures to finance infrastructure and economic diversification further spurred borrowing.
Despite the ballooning debt, the debt-to-GDP ratio remained manageable, although by the end of Jonathan’s presidency, it had started to breach the 40% threshold, signaling potential risks for Nigeria’s fiscal position.
The Buhari administration took a more aggressive stance on borrowing, especially after the 2016 recession. By 2023, national debt had reached ₦87.4 trillion, a 215% increase from the previous administration. Several factors contributed to this surge:
The recession and a sharp decline in oil prices stunted economic growth.
Nigeria borrowed extensively to respond to the pandemic, taking on $3.4 billion in loans to fund recovery efforts.
There was a significant push for infrastructure development, primarily financed through borrowed funds.
By 2023, debt service had begun consuming a larger share of government revenue, raising concerns about fiscal sustainability. Despite the push for infrastructure growth, the debt burden cast a shadow over Nigeria’s economic outlook.
Under President Bola Tinubu, Nigeria’s debt escalated even further. By the first quarter of 2025, the national debt had risen to ₦149.3 trillion, with projections indicating it could reach ₦200 trillion by 2026. This increase was driven by:
Naira floatation and subsidy removals, which added immediate fiscal pressures.
An aggressive borrowing strategy, with the government securing $21.5 billion for infrastructure projects planned for 2025–2026.
Despite these measures, Nigeria’s debt-to-GDP ratio is expected to remain around 40% in the short term. While this is still below the emerging market threshold of 55%, the sharp rise in debt service costs signals an impending challenge. In 2024, debt service payments exceeded ₦8.8 trillion, surpassing combined allocations for education and health underscoring the growing fiscal strain.
The House of Representatives recently approved a strategic borrowing plan to address a ₦9.27 trillion ($6.2 billion) gap in the 2025 budget, which represents about 4.7% of Nigeria’s projected GDP. This plan includes direct external loans and bond refinancings aimed at financing capital expenditures, particularly in sectors like infrastructure and renewable energy. Key components of this plan include:
A ₦1.84 trillion ($1.23 billion) deficit bridge funded through external loans.
Refinancing of Nigeria’s 2012 Eurobond ($1.12 billion) at a reduced interest rate, which is expected to help manage large lump-sum repayments.
A $2.35 billion multi-instrument drawdown, using Eurobonds, syndications, bridge financing, and borrowing from international institutions such as the World Bank.
Additionally, the government plans to issue a $500 million debut sovereign sukuk, marking Nigeria’s first independent Islamic bond abroad. This sukuk is expected to help finance infrastructure projects and may offer a more sustainable funding model for Nigeria’s long-term development.
While this $4.37 billion borrowing strategy is part of a broader fiscal plan for 2025–2026, it signals a shift from austerity to expansionary policies. Proponents of this strategy argue that it will stabilize the naira, enhance foreign reserves, and drive GDP growth, which is now forecasted at 3.4%, up from an initial 3.1%. However, concerns remain about Nigeria’s low non-oil revenue base, which remains only 10% of GDP—far below the global average of 25%.
Fiscal discipline has been a challenge for Nigeria, with the IMF warning that Nigeria’s fiscal deficits should not exceed 3% of GDP. The country’s debt service-to-revenue ratio reached 133% in early 2025, significantly surpassing the World Bank’s sustainability threshold. This underscores the need for reforms in both debt management and domestic revenue generation.
Nigeria’s fiscal priorities are outlined in the 2025 budget, with approximately 40% allocated to infrastructure development in key sectors like roads, rail, and power. The African Development Bank (AfDB) estimates that these investments could add an additional 1.2% to GDP through multiplier effects. However, delays in infrastructure project execution have been a persistent issue, with 70% of past projects experiencing significant setbacks.
Social services, especially health and education, receive 25% of the budget, but out-of-pocket health expenses still account for 70% of total health expenditures, indicating a continued strain on the system. Security and agriculture, which are vital to national stability, are allocated 20% of the budget, with farm loans expected to boost agricultural yields by 15%.
A significant vulnerability for Nigeria lies in its external debt, which is highly sensitive to foreign exchange fluctuations. A 10% depreciation of the naira could increase annual debt servicing by ₦500 billion. The PwC 2025 outlook highlights the risk of fiscal forecasting errors, with the possibility of deficits exceeding 20% of GDP if revenue growth does not meet expectations. This underscores the urgent need for economic diversification, especially as oil continues to account for 50% of Nigeria’s export earnings.
On a more optimistic note, the government’s embrace of Sukuk financing presents a potential avenue for sustainable funding. With a global Islamic finance market valued at $3 trillion, Sukuk could unlock significant capital for infrastructure projects, providing an alternative source of funding that may reduce Nigeria’s reliance on traditional debt instruments.
Nigeria’s fiscal future is heavily dependent on its ability to navigate current debt challenges while increasing domestic revenue generation. By adopting successful models from other countries, such as Indonesia’s digital tax reforms and Kenya’s green bonds, Nigeria can broaden its sources of financing and work toward long-term fiscal sustainability.