Nigeria isn’t over-borrowed — It’s overburdened

Nigeria’s debt profile is once again under scrutiny, but the familiar narrative may be missing the point. By conventional metrics, the country’s debt-to-GDP ratio remains relatively moderate, often cited as evidence that its fiscal position is under control. This headline figure masks a deeper and more immediate concern: the growing strain of debt servicing on government finances.

Recent fiscal data from the Debt Management Office and the Central Bank of Nigeria show that Nigeria is committing between 70 and 90 percent of its revenue to servicing debt, leaving limited room for capital investment or social spending. In practical terms, this means the government is increasingly constrained in its ability to fund critical sectors such as education, healthcare, and infrastructure. In some instances, borrowing has been required simply to meet existing obligations, a pattern that raises questions about long-term sustainability.

This dynamic points to a more fundamental issue. Nigeria’s challenge is not primarily the size of its debt but the structure, cost, and conditions attached to it. As debt servicing absorbs a growing share of revenue, the country faces a tightening fiscal space that risks slowing development and weakening economic resilience.

At the heart of the problem lies a flawed way of measuring sustainability. The global financial system continues to rely heavily on debt-to-GDP ratios as the benchmark for assessing a country’s fiscal health. But governments do not repay debt with GDP; they repay it with revenue. And Nigeria’s revenue base remains persistently weak, with one of the lowest tax-to-GDP ratios in the world.

This mismatch creates a dangerous illusion. Nigeria appears stable when assessed against the size of its economy, but strained when assessed against its actual capacity to generate income. A more realistic measure, debt service-to-revenue, tells a different story entirely, one of severe constraint. Until this shift in measurement becomes central to policy and global assessments, Nigeria’s true fiscal position will remain misunderstood.

Beyond measurement, the cost of borrowing presents another structural challenge. Nigeria, like many developing economies, pays a significant premium to access capital. While this is often justified on the basis of risk, the scale of the disparity suggests deeper inefficiencies in how global markets price that risk. Countries with similar or even weaker fundamentals often secure financing at more favourable rates simply because they operate within more trusted financial ecosystems.

This is not merely a market outcome; it is a systemic imbalance. And it carries real consequences. High borrowing costs reduce fiscal space, increase repayment pressure, and discourage long-term investment. For a country seeking to accelerate growth, this is a fundamental constraint.

Domestically, the shift toward increased borrowing within local markets introduces its own risks. Government demand for funds raises interest rates and limits access to credit for businesses, effectively crowding out the private sector. For small and medium-sized enterprises, the backbone of job creation, this translates into higher borrowing costs and reduced capacity to expand. Growth, in this context, is not just slowed; it is actively constrained.

The structure of Nigeria’s debt compounds these challenges. A significant portion is tied to short- and medium-term instruments, exposing the country to refinancing risks. During periods of global financial tightening, rolling over debt becomes more expensive and uncertain. This vulnerability is not hypothetical; it is a recurring feature of the current system.

There are, however, clear pathways forward. First, Nigeria must refine how it defines and measures debt sustainability. Shifting focus to debt service-to-revenue ratios would provide a more accurate reflection of fiscal health and support more responsible borrowing decisions.

Second, the country should actively pursue more flexible financing instruments. Options such as GDP-linked bonds or state-contingent debt can align repayment obligations with economic performance, reducing pressure during downturns and improving resilience.

Third, strengthening domestic revenue generation is essential. Broadening the tax base, improving compliance, and leveraging technology for efficiency can significantly enhance fiscal capacity. Without this, even well-structured debt will remain difficult to sustain.

But domestic reforms, while necessary, are not sufficient. Nigeria operates within a global financial architecture that often prioritises repayment over development. Debt restructuring processes remain slow and fragmented, while access to affordable, long-term financing is limited. This is where Nigeria must move from participant to advocate.

There is a compelling case for systemic reform: expanded use of concessional financing, improved access to Special Drawing Rights, and the creation of mechanisms such as a Global Sovereign Liquidity Facility to provide pre-emptive support during periods of stress. Standardising debt contracts and improving restructuring frameworks would also enhance predictability and reduce uncertainty.

At the same time, Nigeria must ensure that borrowing is tied directly to productive investment. Debt should finance infrastructure, energy, and industrial capacity, areas that generate returns capable of supporting repayment. Borrowing without growth is a dead end; borrowing for growth is a strategy.

Ultimately, Nigeria’s debt challenge is not defined by excess but by constraint. It is a system where the cost of capital is high, the metrics are misaligned, and the rules are uneven. Under such conditions, even prudent borrowing can become burdensome.

The question, then, is not whether Nigeria can continue to borrow. It is whether it can grow under the terms on which it does so.

Because if those terms remain unchanged, Nigeria will not run out of debt but it will run out of growth.