By Chinwendu Obienyi
As Nigeria faces a mounting debt burden, experts are calling for a strategic shift toward concessional borrowing to ease repayment pressures, sustain economic growth and prevent a full-blown fiscal crisis.
The verdict comes after a report by Cardinalstone, an investment and research firm, at the weekend, projected that the country’s debt stock could reach N187.79 trillion at the end of the year.
The accumulation in debt profile, according to the report, is fueled by the issuance of a dollar-denominated domestic bond ($900.00 billion), regular borrowings through Nigeria Treasury Bills (NTBs) and bonds, and the country’s recent return to the Eurobond market to raise $2.20 billion.
“We estimate government debt to reach N187.79 trillion in 2025. The sharp rise in government debt has heightened concerns about its sustainability,” the analysts said in their report titled ‘Pressure to Plateau’.
The country’s debt has surged significantly in recent quarters, climbing from N49.85 trillion before the 2023 general elections to N134.30 trillion by the end of the first half of 2024.
The sharp increase primarily reflects the impact of policy-induced Naira depreciation, aggressive government borrowing, and rising borrowing costs.
Data sourced from the Debt Management Office (DMO), revealed that the country has as much as N63 trillion ($43 billion) as its foreign debt, accounting for 47% of the total debt stock as at the second quarter (Q2) of 2024.
The Federal Government of Nigeria took the lion share, borrowing approximately N56 trillion while the 36 states plus the Federal Capital Territory (FCT) had N7 trillion as their external debt.
Analysing the data, the report revealed that the FG relied more on domestic borrowings as it accounted for 53% of total debt profile with the FGN taking N66 trillion and state governments having N4 trillion as their debts. Nigeria’s debt stock has grown from 53% recorded in the first quarter (Q1) to 58% in Q2, defying the DMO’s self-imposed public debt ceiling of 40%, as outlined in the agency’s Medium-Term Debt Management Strategy.
Although the current public debt-to-GDP ratio is slightly below the IMF’s 60% benchmark for emerging market countries, the nation’s weak revenue profile and FX volatility risks could further escalate debt levels, straining the already strained economy.
With Nigeria’s debt stock rising, debt-to-service ratio will remain elevated. This means that a large percentage of the government’s revenue which should be used for capital expenditures will be portioned to pay off the debts.
For instance, debt service costs surged by 69% year-on-year to N6.0 trillion in the first six months of 2024, consuming about half (50%) of FG’s aggregate expenditure, highlighting the significant burden of debt obligations on the government’s finances.
The debt service cost implies a debt-service-to-revenue ratio of 162%, up from the 128% reported in the first half (H1) of 2023, indicating the considerable portion of government revenue set aside to meet debt commitments.
The Cardinalstone report stated that Nigeria faces some notable debt obligations. Aside from 2026, the country has Eurobond maturities averaging $1.33 billion annually over the next decade. Including coupon payments, total annual debt servicing costs could average $2.24 billion.
These maturities suggest that debt repayment and servicing costs are likely to remain high in the near to medium term, but we reiterate that the country’s external debt linked ratios (such as external debt service as % of exports, external debt to exports, and debt service to exports) are still favourably within IMF’s prescribed thresholds”, the report said.
Reacting to the report, economic experts have expressed concerns over the rising debt levels, warning that it could trigger a debt crisis for a country that’s reeling from its worst cost of living crisis in a generation.
They added that as the debt-service-to-revenue ratio reaches unsustainable levels, prioritizing concessional borrowing—loans offered at below-market rates with extended repayment periods—presents an effective strategy to alleviate the looming debt crisis.
Unlike market-based borrowing, concessional loans minimize exposure to volatile interest rates, sudden capital outflows and address the financing gap faced by developing countries. These countries often struggle to attract private investment due to perceived risks, limited resources and high borrowing costs.
This is not to say that Nigeria has not yet tapped into that as last year, the country obtained a $1 billion concessional loan with favorable terms, including a 25-year repayment period and an 8-year moratorium at an interest rate of 4.2% from African Development Bank (AfDB). The country also secured a $500 million concessionary loan focused on enhancing its electricity sector. The funds aim to improve infrastructure, expand metering, and enhance distribution company operations following tariff reforms. These initiatives are part of broader efforts to reduce subsidies and improve financial sustainability in the energy sector.
Experts’ views
President, Association of Capital Market Academics of Nigeria (ACMAN), Uche Uwaleke, maintained that the concessionary borrowing is fully justified as it falls within the scope of the borrowing plan outlined in the 2024 budget.
However, he emphasized the importance of transparency to ensure that concessionary loans had to be used wisely given the nation’s already crippling debt load.
He proposed that more attention should be directed toward Sovereign Sukuk, which are not only tied to specific projects but also carry a far lower cost.
“Prudent management of the public debt implies that the government should avail itself of the opportunity to access concessional loans which deliver twin benefits of being more cost efficient and supporting infrastructural development.
Loans from Concessional Lenders have limits in terms of the amounts that they can provide to each country. This makes it necessary for Nigeria to have several sources for accessing concessional capital to increase the total amount available and also, to avoid undue dependence on only a few sources of concessional funds”, he explained.
Conclusion
Concessional borrowing offers a viable pathway for Nigeria to navigate its debt challenges. However, the government must pair this approach with structural reforms, enhanced revenue mobilization, and transparent fiscal management. By adopting these measures, Nigeria can stabilize its debt profile, foster sustainable growth, and ensure resilience against future economic shocks.