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By Chinwendu Obienyi
Nigeria’s renewed foray into the international capital market has revived long-standing debates around fiscal sustainability, rising external debt exposure, and the pressing need for greater discipline in public investment.
This follows the Federal Government’s successful pricing of $2.35 billion in Eurobonds last week, its largest external issuance in four years.
With the dust settling on the oversubscription and improved investor sentiment, attention is now shifting from the initial applause to the more consequential question, which is centered around how Africa’s biggest economy would repay its debt.
The Debt Management Office (DMO) announced that the two-tranche issuance, $1.25 billion (10-year) at 8.6308 per cent and $1.10 billion (20-year) at 9.1297 per cent, was oversubscribed by more than five times, signaling strong appetite for Nigerian risk assets in a market gradually normalising after years of rate volatility.
Economic analysts while pointing to several confidence-boosting factors which include the upgrade in credit outlook from from Moody’s and Fitch, Nigeria’s exit from the FATF grey list, attractive coupon rates and ease in the debt-to-GDP ratio after the GDP rebasing, said investors ignored the fiscal red flags hence, the robust interest.
But beyond the successful pricing and strong bids lies a more consequential issue: Nigeria’s repayment plan is viable only if the borrowed funds are channelled into productive capital investments capable of generating foreign exchange inflows. Anything less risks worsening an already fragile fiscal position.
For context, as of June 2025, Nigeria’s total public debt stood at N152.4 trillion, rising by N7.7 trillion in just six months. Crucially, 79.9 per cent of this increase came from domestic borrowing by the Federal Government.
By mid-year, the FG had already used 83.8 per cent of its planned N7.4 trillion domestic borrowing for 2025, leaving just N1.2 trillion in room. That buffer did not last. Fresh DMO and CBN data revealed that the government issued an additional N1.2 trillion in bonds and N1.1 trillion in net Treasury bills between July and early November, excluding Sukuk and savings bonds.
This aggressive borrowing rhythm confirms earlier warnings that the fiscal deficit could stretch to N14 trillion in 2025 under a baseline scenario, far above official projections.
The Federal Inland Revenue Service (FIRS) continues to record strong non-oil tax receipts, N23.7 trillion against a target of N19.9 trillion, thanks largely to the TaxProMax compliance system adopted in 2022.
But this improvement masks deeper revenue concerns. A report by Afrinvest Research stated that Nigeria continued to miss its oil revenue targets due to structural and operational constraints.
“For H1 2025, the pro-rata oil revenue target of N10.5 trillion was missed by 19.8 per cent, as crude production averaged 1.67 million barrels per day at $69.96 per barrel, below the budget assumptions of 2.06 mbpd and $70/barrel.
Given total planned expenditure of N55 trillion, any revenue outcome below N44.8 trillion inevitably widens the deficit, pushing Nigeria further into the debt cycle”, the report said.
Not to forget, the 2036 Eurobond coupon of 8.6308 per cent even exceeded the 7.96 per cent on the Benin Republic’s $1.9 billion bond issued earlier in 2025, even as global interest rates have trended downward.
Hence, for investors seeking yield in an environment of tapering global rates, Nigerian debt remains appealing. For Nigeria, however, the high coupons underscore the premium it must pay for global capital.
But the country’s external debt profile tells a sobering story.
In the first half of 2025 alone, the country spent $2.23 billion (N3.5 trillion) on external obligations, $993.9 million on interest and $1.3 billion on principal repayments.
For the full year, repayment obligations are projected at $5.2 billion, implying nearly $3 billion in outflows in the second half. At an exchange rate of N1,500 per dollar, this equates to N7.8 trillion, representing more than 50 per cent of the total debt-service provision in the 2025 budget.
Yet, external debt accounts for less than half of Nigeria’s total debt stock. The implication is clear that Nigeria’s external debt carries disproportionate repayment pressure, primarily due to currency risk. Any naira depreciation amplifies the burden.
Experts’ react
For countries with shallow export bases and volatile foreign exchange earnings, Eurobonds are double-edged swords.
To be clear, the Eurobond issuance delivers short-term benefits, it provides budgetary support, helps manage the November Eurobond maturity, enhance foreign reserve buffers and signals global investor confidence
But these advantages are temporary.
The long-term sustainability of the borrowing hinges on whether Nigeria can convert these dollars into economic value. The repayment plan depends not on austerity or further borrowing but on productive capacity, export competitiveness, and structural reforms.
This is Nigeria’s precise predicament which is why experts including those who initially welcomed the Eurobond issuance, warned that the government must break from past patterns of using external borrowings to fund recurrent spending or plug budget shortfalls.
According to them, doing so would not only burden future budgets but also perpetuate a cycle of refinancing and rollover risks.
The Managing Director, APT Securities, Kurfi Garba, suggested that Nigeria channel the proceeds to FX generating infrastructure, power sector stabilisation and value addition in agriculture and mining.
“We can use these proceeds for our ports, rail networks, energy facilities, and industrial corridors because they support exports and reduce logistical bottlenecks. Secondly, Nigeria cannot continue exporting raw commodities while importing processed goods because processing enhances export value and boosts FX earnings. We then have to look at reliable electricity because that is what increases productivity, supports manufacturing, and attracts foreign investment”, Garba explained.
Also speaking, Chief Partner, SPM Professional, Paul Alaje, Nigeria needs a broader export base to hedge against oil volatility.
“From creative industries to fintech and manufacturing, Nigeria needs a broader export base to hedge against oil volatility.
Every dollar must yield growth. Without measurable returns, Nigeria risks repeating previous cycles where borrowed funds yielded little transformation and repayments strained fiscal stability”, he warned.
According to him, the oversubscribed Eurobond shows that investors have not completely lost faith. But their confidence comes at a cost and with expectations.
Conclusion
Nigeria’s fiscal challenge is not merely about how much it borrows but how well it spends. The latest Eurobond provides an opportunity to reset the narrative and that is if the funds are deployed toward investments that expand the country’s productive base. That is why the Eurobond repayment plan ultimately rests on productive investments. Only by growing the economy, diversifying revenue sources, and strengthening foreign exchange generation can Nigeria avoid future distress and turn debt into a catalyst for sustainable development.
