By Ihechi Enyinnaya
Nigeria’s debt burden could place increasing pressure on government finances, with debt servicing projected to consume 71.7 per cent of the Federal Government’s revenue by 2030, raising concerns over the country’s ability to fund infrastructure, social services and other 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 generation, exchange rate depreciation and global economic uncertainties.
According to the report, the Federal Government’s debt service-to-revenue ratio, which stood at 60.55 per cent in 2024, is projected to rise to 71.7 per cent by 2030 under the baseline scenario.
This would exceed the 50 per cent self-imposed threshold used in the assessment.
The DMO, however, warned that the situation could deteriorate further under an adverse economic scenario involving naira depreciation, weaker economic growth and declining government revenue.
Under such circumstances, the debt service-to-revenue ratio could rise to 97.3 per cent by 2030, leaving the government with very limited resources to meet other financial obligations.
The report attributed the worsening outlook to the faster growth of debt servicing obligations relative to government revenue, warning that the trend would further narrow the country’s fiscal space.
It stated that under the baseline scenario, the ratio would rise above the 50 per cent threshold 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.
Under the shock scenario, the DMO projected that a shortfall in domestic revenue mobilisation could push the ratio from 57.4 per cent in 2026 to nearly 98 per cent by 2030.
It warned that the rising pressure of debt servicing on government revenue posed a threat to debt sustainability and called for urgent measures to reverse the trend.
Nigeria’s total public debt stood at N144.67 trillion as of December 31, 2024, compared with N27.40 trillion in 2019. The country’s debt stock subsequently increased to N166.788 trillion as of June 2026.
The figure covers the domestic and external debts of the Federal Government, the 36 states and the Federal Capital Territory.
The debt-to-GDP ratio also rose 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.
The report showed that the Federal Government spent N12.62 trillion on debt servicing in 2024, up from N7.53 trillion in 2023.
Government revenue also increased to N20.84 trillion in 2024 from N11.74 trillion in the preceding year.
Despite the increase in debt servicing, the debt service-to-revenue ratio declined to 60.55 per cent in 2024 from 64.14 per cent in 2023.
The improvement was attributed to increased revenue collection following the removal of petrol subsidy, exchange rate unification and improved management of revenue remittances from government-owned enterprises.
However, the DMO identified significant vulnerabilities in Nigeria’s debt profile, particularly rising borrowing costs, refinancing pressures and exposure to foreign exchange risks.
It classified the country’s financing risk as high, noting that the average bond spread stood at 976 basis points, above the 600-basis-point threshold under the International Monetary Fund and World Bank Debt Sustainability Analysis framework.
Refinancing risk was also classified as high, with the annual change in the share of short-term debt to total public debt standing at 1.8, above the threshold of 1.0.
Similarly, debt held by non-residents accounted for 49 per cent of total public debt, exceeding the 45 per cent threshold and exposing Nigeria to foreign exchange fluctuations and changing market sentiments.
The DMO, however, classified the risk associated with foreign currency-denominated debt as moderate, as such obligations accounted for 50 per cent of total public debt, below the 60 per cent threshold.
The office further warned that unfavourable movements in exchange rates, inflation, interest rates, economic growth and government revenue could worsen Nigeria’s debt position.
Under its stress test, the debt-to-GDP ratio could rise to 47 per cent in 2027, compared with 38.2 per cent under the baseline scenario.
Similarly, the debt service-to-revenue ratio could reach 70.6 per cent in 2027 under the stress scenario, significantly exceeding the 50 per cent threshold.
To address the challenges, the DMO recommended stronger revenue mobilisation through tax reforms, expansion of the tax base, improved compliance and the deployment of technology to strengthen tax administration.
It also called for greater efficiency in public expenditure, urging the government to prioritise growth-enhancing investments capable of expanding the economy and generating additional revenue.
The office recommended reducing reliance on borrowing by financing capital projects through public-private partnerships, while ensuring compliance with the Fiscal Responsibility Act and relevant provisions of the Central Bank of Nigeria Act on Ways and Means Advances.
Other recommendations included considering the privatisation or sale of government assets and relying more on concessional financing where available.
The DMO also stressed the importance of sustaining petrol subsidy removal and maintaining a unified and flexible exchange rate regime as measures to improve government revenue and reduce debt sustainability risks.