Nigeria’s fiscal space is tightening rapidly as the President Bola Ahmed Tinubu’s administration ramps up borrowing to cover growing budget shortfalls, heightening concerns among economists and credit analysts about the sustainability of the country’s public finances.
Barely months after raising $2.5 billion from the international bond market, the Federal Government has again approached the National Assembly seeking approval to borrow ₦1.5 trillion from the domestic market—a move it says was needed to fund critical programmes under the 2025 budget.
But with debt servicing costs rising faster than revenue, experts warn that Nigeria may be running out of fiscal room to maneuver, as more resources are being channeled to repay loans rather than fund development.
Debt soars as servicing costs bite
Data from the Debt Management Office (DMO) shows that as of March 31, 2025, Nigeria’s total public debt stood at $97.32 billion (₦149.3 trillion), with domestic debt accounting for 53 per cent and external debt about ₦63 trillion. The fiscal consequences of this growing debt stock have been severe.
In 2024, Nigeria spent a staggering $8.55 billion (₦13.12 trillion) on debt servicing—a 68 per cent jump from the previous year.
In the first four months of 2025, debt service payments already hit $2.01 billion, up 49 percent year-on-year, while external obligations climbed to $2.86 billion within eight months, with projections indicating a further rise to $5.2 billion by year-end.
According to the 2025 budget, about 39 per cent of government’s revenue was earmarked for debt servicing—leaving limited fiscal space for investments in infrastructure, health, education, or social welfare.
Analysts: “Nigeria running out of room”
Economists say Nigeria’s fiscal space—the government’s capacity to raise or spend money without endangering its financial stability—is narrowing dangerously.
“Debt servicing is consuming nearly half of federal revenue. That leaves little for capital expenditure or essential social programmes,” said Dr. Muda Yusuf, Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE).
“The real issue is not just the rising debt but our chronically weak revenue base.” He cautioned that without aggressive revenue reforms—especially expanding the non-oil tax base Nigeria risks being trapped in a cycle of borrowing to service old debts.
Similarly, Prof. Uche Uwaleke, Nigeria’s first Professor of Capital Market Studies, said the growing reliance on domestic borrowing would likely crowd out private sector investment.
“The government’s heavy presence in the domestic debt market pushes up interest rates and reduces credit availability for businesses. That’s a recipe for slower economic growth,” he said.
Global Agencies warn of fiscal vulnerability
Credit rating agency, Fitch Ratings, recently warned that Nigeria’s high debt servicing costs were eroding fiscal resilience, noting that interest payments now absorb more than 30 per cent of total government revenue and almost half of federal earnings.
Similarly, the World Bank has flagged Nigeria’s fiscal structure as unsustainable, citing low nonoil revenue and high expenditure commitments that leave little room for productive investment.
“The combination of high debt servicing and low revenue severely limits fiscal flexibility and heightens vulnerability to shocks,” the Bank said in its 2025 Nigeria Economic Update.
Government’s Defence: Borrowing for growth
Despite the warnings, the Tinubu administration maintains that its borrowing strategy is targeted at productive sectors to stimulate growth.
The Minister of Finance and Coordinating Minister of the Economy, Wale Edun, insists the government’s debt strategy balances external and domestic borrowing to reduce exchange rate pressures while investing in infrastructure and social programmes.
“Every borrowing is tied to a developmental purpose,” Edun said recently. “We are not borrowing for consumption but to support growth and create jobs.”
Calls for fiscal discipline and reform
Still, many analysts argued that Nigeria’s fiscal sustainability depends less on borrowing and more on how effectively the government manages spending and mobilises revenue. CEO of Economic Associates, Dr. Ayo Teriba, believes Nigeria must shift from debt to assetbased financing.
“We should be monetising public assets—ports, refineries, real estate—instead of piling up loans,” he said. “That would free fiscal space and reduce pressure on future budgets.” With oil revenues fluctuating and tax receipts still below global averages, Nigeria’s fiscal future looks increasingly constrained.
Unless significant reforms are implemented to broaden revenue sources, streamline expenditure, and improve debt efficiency, the country’s capacity to finance development could continue to shrink.
“Nigeria’s fiscal space is closing fast,” said Emeritus Professor of Economics and Public Policy, Akpan Ekpo. “The question now isn’t whether we can borrow more— but whether we can afford to keep borrowing without stifling our future.”
