Nigeria's Escalating Debt Crisis: Urgent Need for Sustainable Fiscal Management

Nigeria is facing a financial crisis as its debt-to-GDP ratio surpasses the 50 per cent mark for the first time since 1991. The Bola Tinubu administration, which inherited a debt-to-GDP ratio of 38 per cent, has seen this figure balloon to 52.9 per cent. This significant increase is a result of fresh borrowings, the securitization of the Ways and Means advances, and an inability to address fiscal challenges such as low crude oil output amidst rising government expenditure and sluggish GDP growth. The current debt-to-GDP ratio significantly exceeds the prudential ceiling of 40 per cent recommended by the International Monetary Fund (IMF) for developing countries, raising questions about Nigeria's debt sustainability.

Historical Context and Current Situation

When Bola Tinubu assumed office, the debt-to-GDP ratio stood at 38 per cent. This relatively manageable figure has escalated due to several factors. The administration's new borrowings, combined with the securitization of the Central Bank of Nigeria's Ways and Means advances, have contributed significantly to the rise. Moreover, persistent fiscal challenges, including reduced crude oil production and increasing government expenditures, have exacerbated the situation.

According to the Debt Management Office (DMO), Nigeria's public debt portfolio currently stands at N121 trillion. This comprises a domestic debt of N65.6 trillion and a foreign debt portfolio of $42.1 billion, equivalent to N56 trillion. The steep increase in the debt-to-GDP ratio poses a severe threat to Nigeria's fiscal health, limiting the government's ability to borrow further to finance the budget deficit and increasing the debt service obligations substantially.

Comparative Analysis and Implications

Historically, Nigeria's finance managers have prided themselves on maintaining a relatively low debt-to-GDP ratio compared to other African countries. For instance, as of 2023, Ghana had a debt-to-GDP ratio of 84.9 per cent, South Africa 72.2 per cent, Kenya 70.1 per cent, and Egypt 95.8 per cent. However, Nigeria's recent spike to 52.9 per cent is a stark deviation from its traditionally lower figures and poses significant challenges.

The rising debt-to-GDP ratio constrains Nigeria's ability to secure additional loans needed to fund its budget deficit. The associated increase in debt service obligations further exacerbates this issue. In 2023, Nigeria spent N7.8 trillion on debt servicing, representing a 121 per cent increase from the N3.52 trillion spent in the previous year. Projections by PwC indicate that Nigeria's debt service could rise to N8.25 trillion in 2024, N9.3 trillion in 2025, and N11.1 trillion in 2026. These escalating figures are likely to affect Nigeria's debt servicing ability, credit rating outlook, and borrowing costs.

Lessons from the Past

In 2005, Nigeria faced a similar unsustainable debt scenario with a total revenue of around $9 billion and a debt portfolio of approximately $36 billion. The administration of President Olusegun Obasanjo negotiated a landmark deal with the Paris and London Club of Creditors, allowing Nigeria to buy back about $30 billion of its $32 billion external debt through a one-time cash payment of $12 billion. This deal provided Nigeria with a clean slate, but the country's public debt has progressively risen since then.

Under President Muhammadu Buhari, public debt increased from N12.6 trillion in 2015 to N97.3 trillion by 2023. The COVID-19 pandemic, a double recession, and lower oil revenues were cited as reasons for the increased borrowings during Buhari's tenure. However, the return to a high debt-to-GDP ratio signals that Nigeria is once again on the brink of a debt trap.

The Real Impact of Borrowing

Despite the significant increase in public debt, Nigerians have seen little improvement in critical infrastructure. Rail and road networks remain in poor condition, health and education facilities are underfunded and deteriorating, and power supply is unreliable. Citizens often have to provide essential services for themselves, highlighting the disconnect between borrowed funds and tangible improvements in public services.

The primary beneficiaries of the borrowing spree appear to be political officeholders and government employees, whose lavish lifestyles are sustained by these funds. This misallocation of resources underscores the need for more prudent financial management and accountability in government spending.

Role of the National Assembly

The increasing debt-to-GDP ratio reflects poorly on the National Assembly, which has failed to provide adequate oversight and control over government borrowing and spending. Instead of curbing fiscal irresponsibility, the National Assembly has allowed a regime of unchecked borrowing, contributing to the current financial predicament. Effective parliamentary oversight is crucial for monitoring the country's finances, promoting accountability, and curbing wastage. Unfortunately, the Nigerian legislature seems more focused on non-essential expenditures, such as the acquisition of new presidential jets, rather than addressing the nation's pressing fiscal challenges.

Recommendations for Sustainable Debt Management

To avoid sinking deeper into a debt trap, Nigeria needs to adopt more prudent financial management practices. Several measures should be taken to ensure the sustainability of the country's debt profile:

1.     Address Fiscal Leakages: The government must tackle fiscal leakages such as oil theft, contract inflation, outright looting, and the issue of 'ghost workers.' These leakages significantly drain the nation's resources and exacerbate the debt problem.

2.     Improve Revenue Generation: Diversifying the economy and improving revenue generation from non-oil sectors are critical. This will reduce the country's over-reliance on oil revenues, which are subject to volatile global market conditions.

3.     Prudent Borrowing: The government should adopt a more cautious approach to borrowing. Loans should be tied to specific, revenue-generating projects that can repay the debt, rather than being used to fund recurrent expenditures.

4.     Enhance Budget Efficiency: There is a need to prioritize essential projects and cut down on non-essential spending. This will ensure that borrowed funds are used effectively to improve infrastructure and public services.

5.     Strengthen Institutional Oversight: Strengthening the role of institutions like the National Assembly in monitoring and controlling government borrowing and spending is crucial. These institutions must hold the executive accountable and ensure transparency in the management of public funds.

6.     Debt Restructuring: Nigeria may need to consider debt restructuring options to ease its debt burden. Engaging with international creditors to negotiate more favourable terms could provide some relief and create fiscal space for critical investments.


Nigeria's rising debt-to-GDP ratio is a significant cause for concern, highlighting the urgent need for more sustainable debt management practices. The current trajectory, marked by increasing borrowings and escalating debt service obligations, is unsustainable and poses a severe threat to the country's economic stability.

President Bola Tinubu administration must take decisive action to address these fiscal challenges and ensure that Nigeria does not fall into another debt trap. This requires a combination of prudent borrowing, improved revenue generation, efficient budget management, and strengthened institutional oversight.

As Nigeria navigates these financial challenges, the hope is that more effective management of public resources will lead to tangible improvements in infrastructure and public services. Achieving this goal is essential for the country's socio-economic development and the well-being of its citizens. #Tinubu #debt-to-GDP-ratio #Bulletin1247 #Economic-Alert TrendingNews

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