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Nigeria’s growing debt profile has become a significant point of discussion in both national and international economic circles. As one of Africa’s largest economies, Nigeria is faced with a unique set of challenges: a largely oil-dependent economy, an expanding population, and a relatively low level of non-oil revenue generation. These issues, coupled with declining oil revenues, have prompted successive Nigerian governments to turn to both domestic and external borrowing to meet fiscal needs. However, as debt levels rise, questions about whether this borrowing is a threat to economic stability or an opportunity for sustainable growth continue to surface.
According to the Debt Management Office (DMO), Nigeria’s total debt as of 2023 was approximately $114 billion (about N40 trillion), a notable increase from around $77 billion in 2019. While this substantial debt has raised alarm bells among critics, others argue that when managed properly, borrowing could fuel Nigeria’s much-needed infrastructural and economic transformation. I will delve into the dual perspectives surrounding Nigeria’s debt profile, exploring its risks and the opportunities it offers for economic development.
The rise in Nigeria’s debt can largely be attributed to the country’s persistent budget deficits. For years, Nigeria has struggled to generate enough revenue to cover its expenditure, primarily due to its over-reliance on crude oil exports. As oil prices fluctuate, so too does the government’s revenue, making it difficult to finance crucial public services and investments. Faced with revenue shortfalls, Nigeria has increasingly resorted to borrowing, both domestically and internationally, to meet its financial obligations.
The government has primarily financed its deficit through the issuance of treasury bills, bonds, and loans from international sources such as the World Bank, African Development Bank (AfDB), and bilateral creditors, including China. In addition, there has been a steady increase in domestic borrowing, with the Central Bank of Nigeria (CBN) playing a central role through the monetisation of government debt.
One of the biggest concerns surrounding this growing debt profile is the rising cost of debt servicing. In recent years, Nigeria has allocated a significant portion of its national revenue toward servicing its debt. Debt servicing accounted for over 60 per cent of Nigeria’s revenue in 2023.
This means that a substantial part of the country’s fiscal resources is used merely to meet interest payments and principal repayments on loans, leaving little room for critical investments in areas such as healthcare, education, infrastructure, and social welfare. Nigeria’s external debt is primarily denominated in foreign currencies, particularly the U.S. dollar, which exposes the country to the risk of exchange rate volatility. As the naira depreciates against the dollar, the cost of servicing foreign-denominated debt increases, compounding the country’s fiscal challenges. This, in turn, raises concerns about Nigeria’s ability to meet its obligations without further exacerbating inflation or depleting foreign reserves.
The specter of unsustainable debt servicing has led many to question the efficacy of Nigeria’s borrowing strategy. The government has not always demonstrated sufficient accountability or transparency in how borrowed funds are utilised. Much of the borrowing has been directed toward large infrastructure projects, some of which have faced delays, cost overruns, and questions about their long-term economic returns. Without clear, measurable outcomes from these investments, the borrowing risks becomes a long-term burden rather than a stepping stone for development.
Debt is an opportunity for growth. Despite the concerns surrounding Nigeria’s debt profile, there are also compelling arguments for why borrowing could present an opportunity for the country’s development. One of the primary benefits of borrowing is its ability to finance infrastructure projects that are essential for economic growth. Infrastructure development is widely recognised as a key driver of economic transformation, and Nigeria is in dire need of improved roads, railways, airports, ports, and energy infrastructure.
Inadequate infrastructure has long been a bottleneck to Nigeria’s economic development. Poor roads and unreliable electricity, for example, impose heavy costs on businesses, limiting productivity and hindering the growth of key sectors such as agriculture, manufacturing, and services. By leveraging borrowed funds to address these challenges, Nigeria could significantly boost its economic potential.
Additionally, well-executed infrastructure projects could generate jobs, stimulate local economies, and enhance the country’s global competitiveness. A key example of borrowing being used to fund large infrastructure projects is the Nigerian government’s ongoing rail modernisation program. Funded in part through loans from China and other international lenders, this initiative is expected to create thousands of jobs, improve connectivity, and reduce the cost of doing business in Nigeria. Similarly, the government has used borrowed funds to invest in critical energy infrastructure, including power generation plants and renewable energy projects.
If these investments are executed properly and managed effectively, they could offer substantial long-term economic returns. In addition to infrastructure, borrowing can also be used to finance sectors with high potential for growth, such as agriculture, technology, and manufacturing. Nigeria’s economy is highly dependent on oil, and diversifying into non-oil sectors is crucial for reducing vulnerability to global commodity price fluctuations. Borrowing to support the growth of agriculture, for example, could enhance food security, create employment, and reduce Nigeria’s reliance on food imports. Similarly, investments in technology and innovation could position Nigeria as a hub for digital entrepreneurship in Africa, with the potential for significant foreign exchange earnings.
Nigeria’s young and growing population provides a massive potential workforce and consumer market. This demographic dividend, if harnessed properly, could be the foundation for robust economic growth. By strategically investing borrowed funds in human capital development, particularly in education and skills training, Nigeria can create a competitive workforce capable of driving innovation and economic expansion.
The key to ensuring that Nigeria’s borrowing remains an opportunity rather than a threat lies in effective debt management. While borrowing can be an important tool for development, it requires careful planning, transparent reporting, and strategic investment to ensure that the returns on investment exceed the cost of debt. Nigeria must adopt a more diversified approach to debt financing.
While domestic debt markets have been crucial in raising funds, relying heavily on domestic borrowing can crowd out private sector credit and create inflationary pressures. Diversifying the sources of borrowing—through the issuance of Eurobonds, loans from multilateral institutions, and bilateral agreements—can reduce the pressure on domestic financial markets and provide access to more favorable borrowing terms. Improving fiscal discipline is essential.
Nigeria’s government must focus on increasing non-oil revenue, particularly by reforming the country’s tax system. Reducing reliance on oil revenues are critical steps to achieving fiscal sustainability. Nigeria needs to ensure that borrowed funds are allocated efficiently to productive investments. For this to happen, there must be a clear, transparent system for monitoring and evaluating the impact of borrowed funds. Debt-financed projects should be chosen based on their potential to generate economic returns, create jobs, and contribute to long-term development goals.
Debt as a Double-Edged Sword. Nigeria’s debt profile presents both a significant threat and a considerable opportunity, depending on how it is managed. The country faces the risk of falling into a debt trap, where servicing loans consumes a large portion of fiscal resources, hindering development. However, when used wisely, borrowing can fund critical infrastructure projects, diversify the economy, and support sectors with high growth potential.
Ultimately, the success of Nigeria’s borrowing strategy will depend on prudent fiscal management, investment in high-return projects, and reforms to enhance revenue generation. By adopting a balanced and strategic approach to borrowing, Nigeria can turn its growing debt into a powerful tool for economic transformation, positioning itself for long-term growth and development.
Udenka is a Social and Political Analyst. He can be reached via:
#AfricaVisionAdvancementTrust.
