Nigeria's public debt has reached unprecedented levels, rising to N152.39 trillion (USD99.66 billion) as at June 2025 and likely to exceed N160 trillion by year-end, driven by fresh borrowings, high domestic interest rates, and exchange-rate adjustments that increased the naira value of external liabilities.
However, the issue is not the size alone but the pace of accumulation, creditor mix, servicing costs, and Nigeria's limited fiscal capacity, all of which reveal an economy balancing the need for growth-supportive financing with the risks of fiscal strain. The rapid build-up reflects structural weaknesses, which include low revenue mobilisation, naira depreciation following foreign exchange reforms, elevated yields on domestic instruments, persistent budget deficits tied to subsidies, security and infrastructure needs, and reduced access to cheap concessional loans, thereby forcing heavier reliance on costlier market-based borrowings, like Euro Bond.
Nigeria's debt portfolio dynamics, market exposure, and emerging fiscal pressures, has received a strong mixed reaction. The Nation's debt profile has expanded steadily across both domestic and external segments, with domestic debt rising from N54.13 trillion in Q2 2023 to N80.55 trillion in Q2 2025. This is supported by increased issuances of FGN Bonds, Treasury Bills, Sukuk, and savings instruments that now account for 52.8 percent of total public debt. External debt also grew moderately from USD43.16 billion to USD46.98 billion over the same period, buoyed by World Bank and AfDB financing, bilateral loans from China and Eurobond issuances, including a $2.2 billion return to the market, and an additional USD2.3 billion on November 5, 2025, among others.
This diversified credit mix provides broad financing options but heightens exposure to global interest-rate cycles, currency volatility, and rollover pressures. These portfolio dynamics are compounded by a rapidly rising debt-service burden: domestic servicing surged from N874 billion in Q1 2023 to N2.37 trillion in Q1 2025, while external servicing reached USD1.39 billion in Q1 2025, mainly due to Eurobond coupons and other multilateral obligations. Between Q3 2023 to Q3 2025, Eurobond obligations accounted for 31.5 percent of Nigeria's external debt service of USD9.32 billion.
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In 2024, debt service absorbed 50 percent of federal expenditure and pushed the debt-service-to-revenue ratio to 162 percent. However, recent reforms such as the foreign exchange unification, subsidy removal, tighter tax enforcement, and improved liquidity have reduced the ratio to 65 percent and lowered external payments to USD276 million by February 2025.
Yet structural vulnerabilities remain, particularly on Nigeria's annual Eurobond maturities averaging USD1.33 billion (or USD2.24 billion including coupons) over the next decade.
Viewed in a global context, there are rising debt risks and multilateral warnings. Nigeria's debt concerns mirror a global trend in which developing countries face rising debt burdens, with United Nations Conference on Trade and Development (UNCTAD) warning that global external debt had reached USD11.4 trillion in 2023 and that billions of the world population now live in nations that are spending more on debt service than on health or education.
Like many of its peers in the developing world, Nigeria has faced periods where debt obligations crowded out development spending, particularly between 2020 and 2023. Yet Nigeria stands out for its improving fundamentals -GDP growth strengthening to 4.23 percent in Q2 2025, reserves above USD43 billion, and a 6.1percent current-account surplus driven by non-oil exports. These have led the World Bank to project that the public-debt-to-GDP ratio could fall below 40 percent, hence remaining comfortably under the IMF's 60 percent benchmark for emerging markets.
Nigeria's debt sustainability hinges on the interplay among four critical indicators, including debt-to-GDP, debt-service-to-revenue, interest costs, and economic growth, with the added pressure that subnational debt has surged to N3.96 trillion domestically and USD4.81 billion externally by June 2025, leaving major states like Lagos, Rivers, and Delta with tightening fiscal space as borrowing and debt-service obligations crowd out essential spending.
Dr. Rislanudeen Muhammad
Former Chief Economist, Bank of Industry and Member Daily Trust Board of Economists
Although the national debt-to-GDP ratio remains below 40 percent, this is misleading given Nigeria's low GDP base and weak revenue capacity, while the improved but still-elevated 65 percent debt-service-to-revenue ratio continues to strain the fiscal envelope. High domestic interest rates heighten rollover risks as local borrowing dominates.
Despite recent reforms and improved macroeconomic stability that supports conditions for a pathway to reduced fiscal pressure, the outlook remains fragile, demanding sustained disciplined reforms, smart refinancing, and stronger revenue mobilisation to ensure long-term debt sustainability.
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Nigeria's rising debt presents both risks and opportunities. High debt-service costs continue to constrain spending on infrastructure, social programmes, and other priority areas like climate financing. This leaves sub nationals particularly vulnerable.
Recent improvements in macroeconomic stability, fiscal discipline, and multilateral support offer a possibility of a more stable outlook going forward. Sensible strategies such as refinancing costly obligations with cheaper external financing can help, provided currency risks are mitigated.
The path forward requires sustained reforms in revenue mobilisation, foreign exchange stability, export diversification, spending efficiency, and transparency in states' borrowings. If sustained, these efforts can turn debt from a recurring burden into a catalyst for long-term sustainable growth and development, job creation, and economic resilience. Optimal borrowings should not only consider debt to GDP ratio but more importantly revenue to GDP ratio. Given its low level even by African standards, the tax to GDP ratio needs to improve substantially, to at least 18 percent 2027 FGN target. This will support robust fiscal space that will support both debt sustainability and massive infrastructural development, among others.
