Analysts warn on implications of servicing debt with 72% of revenue

Analysts have cautioned that dedicating almost three-quarters of Nigeria's government revenue to debt servicing could hinder crucial investments in vital sectors like infrastructure, education, and healthcare. This concern emerged after the Debt Management Office's 2024 Debt Sustainability Analysis, which forecasts that the debt service-to-revenue ratio could climb to 71.7 percent by 2030.

The projection relies on factors such as a dollar-to-naira exchange rate of N1,500, a real GDP growth rate of 4.8 percent, and a primary balance of 3.8 percent.

During the first half of 2026, the federal government earned roughly N6.2tn in revenue, while domestic debt service amounted to N5.28tn and external debt service reached $1.82bn. The World Bank estimated the debt-service-to-revenue ratio at around 124 percent during this period, considering total debt obligations, including those at the state level, relative to federal revenue.

The Ministry of Finance, however, disputed this figure, asserting that the direct interest-to-revenue ratio for the federal government is closer to 60 percent.

Economist Dr. Aliyu Audu emphasized that borrowing could be beneficial if it is directed towards productive projects that can generate revenue and repay the loans. He gave the example of railway construction, arguing that such investments should yield income, create jobs, and leave the country with enduring assets post-repayment.

Audu questioned why Nigeria continues to grapple with basic infrastructure issues, particularly erratic electricity supply, despite repeated borrowing. He stressed that power infrastructure should be a priority because nearly every sector of the economy depends on electricity, and ongoing power shortages continue to inflate business costs.

Former Project Director of the Presidential Initiative on Compressed Natural Gas and Electric Vehicle, Engr Michael Oluwagbemi, also commented on the situation. He noted that debt servicing has decreased from nearly 97 percent of revenue when President Bola Tinubu took office to between 60 and 65 percent. Oluwagbemi attributed this improvement to debt refinancing, the discontinuation of fuel subsidies, and heightened government revenue.

While acknowledging that the current ratio remains high, he disagreed with the DMO's projection, contending that future revenue growth could alleviate the pressure. Oluwagbemi argued that borrowing for infrastructure that boosts productivity and economic output would bolster government revenue, making debt servicing more sustainable.

He described borrowing to finance fuel subsidies as wasteful, as such spending did not generate lasting productive assets. Oluwagbemi projected that if Nigeria's economy expands from approximately $400bn to $750bn, government revenue could significantly increase, provided the revenue-to-GDP ratio stays between 12.5 and 15 percent.

Consequently, he viewed the DMO's projection as potentially conservative, suggesting it may not adequately factor in future revenue growth from infrastructure investments.