Debt Servicing Devours Nigeria’s Finances, Raising Concerns Over Economic Development
Nigeria’s latest government expenditure report reveals a stark fiscal reality: between January and August 2024, the nation spent ₦7.41 trillion on debt servicing, significantly outpacing the ₦5.51 trillion pro-rata budget and highlighting the heavy financial toll of debt on the country’s economy. Debt payments consumed an overwhelming 89.6% of the annual debt servicing budget, which is set to be exceeded—following a similar overspend in 2023. This debt burden has left capital expenditure severely underfunded, constraining critical development initiatives.
Debt repayment costs are also expected to rise steeply over the next three years, with debt servicing projected to consume ₦50.39 trillion from 2025 to 2027, compared to a planned ₦48.93 trillion for capital projects. This pattern, experts warn, signals a fiscal future where debt obligations dwarf essential investments in infrastructure, health, and education.
Data from Nigeria’s Medium-Term Expenditure Framework (MTEF) indicate that domestic debt servicing alone accounted for ₦3.6 trillion, while foreign debt costs surged to ₦3.8 trillion, a 107.7% jump over budget due to the naira’s depreciation. The increased cost of dollar-denominated debt repayments has further strained the federal budget, which also bore an unplanned ₦3.05 billion interest on bonds tied to securitisedCentral Bank advances.
The report paints a dire picture for Nigeria’s capital spending, which fell 60% below its target. Out of ₦13.77 trillion allocated for 2024, only ₦3.65 trillion was deployed, with critical areas such as government-owned enterprises and multilateral project funding seeing severe shortfalls. Infrastructure projects—fundamental to fostering economic growth—remain stalled as funds are diverted to service the nation’s swelling debt.
At the recent Nigerian Economic Summit, Budget and Economic Planning Minister Abubakar Bagudu emphasised the government’s commitment to fiscal recovery through three distinct budgets. These, he explained, aim to tackle Nigeria’s most pressing priorities: food security, infrastructure, human capital, and social investments. However, while laudable, the ambitious budgeting approach has struggled against the nation’s constrained fiscal space, with debt servicing demands continually undermining capital spending.
Economists have sounded the alarm, warning that prioritisingdebt repayments at the expense of developmental outlays could result in prolonged stagnation. Prof Adeola Adenikinju, President of the Nigerian Economic Society, argued that debt servicing, while mandatory, fails to contribute positively to the economy. “This is an obligation we cannot ignore,” he noted, adding that past financial mismanagement has left Nigeria paying heavily without reaping economic rewards. He criticisedthe government’s consistent failure to meet capital expenditure targets, stressing that the disproportionate focus on debt servicing offers no benefit to Nigeria’s economic growth.
Looking ahead, analysts warn that the next three years will likely see an even greater squeeze on government resources as debt servicing rises by 26.7% from 2025 to 2027. Capital expenditure, in contrast, is expected to grow by only 0.18%. This imbalance raises serious concerns about Nigeria’s ability to achieve its long-term development goals, with the cost of debt leaving little room for much-needed infrastructure investment.
As debt consumes an increasing share of the national budget, Nigeria faces a stark fiscal reality. Without addressing the root causes of the country’s reliance on borrowing, and without expanding the nation’s revenue base, the path forward appears fraught, with implications not only for fiscal sustainability but also for the country’s future economic prospects.
