…projections suggest levels could approach 60% by 2027
Nigeria’s debt challenge has entered a new phase. By the end of 2024, the country’s debt-to-GDP ratio climbed to 52.25 per cent, a sharp rise that not only breached the Federal Government’s self-imposed threshold of 40 per cent but also reignited long-standing concerns about fiscal sustainability.
The latest figures, captured in the Debt Management Office’s (DMO) Medium-Term Debt Management Strategy (MTDS) 2024–2027, mark a steep departure from recent history. Barely five years ago, in 2019, Nigeria’s debt stock represented just 19 per cent of GDP. By 2023, the ratio had risen to 40.57 per cent. Today, it sits closer to levels that were once considered unthinkable.
What is driving the surge?
The DMO points to several factors: new borrowings to finance budget deficits, the issuance of promissory notes, and most significantly, the inclusion of ₦30 trillion in Ways and Means Advances—previously sitting on the books of the Central Bank of Nigeria—into the federal government’s domestic debt profile.
Currency depreciation has also played a decisive role. The naira, which was projected at ₦800 per dollar in the 2024 budget, closed the year at ₦1,535.32 to the dollar. The weaker exchange rate inflated the external debt stock and raised debt servicing costs, further straining public finances.
Although the ratio is above Nigeria’s 40 per cent ceiling, it remains below the 70 per cent benchmark recognised by both the International Monetary Fund’s (IMF) debt sustainability framework and the ECOWAS convergence criteria. Yet, projections by the DMO suggest the figure could rise towards 60 per cent by 2027 if current borrowing patterns persist.
Balancing cost and risk
The MTDS is the government’s blueprint for managing its debt burden over the next four years. Developed with technical support from the World Bank and IMF, the document outlines strategies to balance Nigeria’s financing needs against rising costs and risks.
According to the plan, Nigeria aims to diversify its borrowing mix, lengthen debt maturities, and explore new instruments such as the Domestic FGN US Dollar Bond launched in 2024, and proposed ESG-compliant securities.
Despite the rising debt stock, the government met several of its internal sustainability targets. The average time to maturity of federal debt improved to 11.05 years, surpassing the minimum target of 10 years. Short-term debt maturing within one year accounted for 13.91 per cent of the portfolio—well within the 20 per cent ceiling. Similarly, the ratio of long-term to short-term domestic debt stood at 82:18, exceeding the 75:25 benchmark.
Shifting debt composition
Originally, Nigeria targeted a 70:30 ratio of domestic to external debt. By 2024, however, the balance had shifted to 57:43, as external borrowings grew alongside naira devaluation. Analysts warn that this tilt increases exposure to global market shocks, adding another layer of risk.
Despite fiscal headwinds, government projections are cautiously optimistic. The Ministry of Budget and Economic Planning forecasts a rebound in growth: real GDP is expected to expand by 4.6 per cent in 2025, 4.4 per cent in 2026, and 5.5 per cent in 2027, driven by infrastructure spending, agriculture, and social investments.
Inflation, currently in double digits, is projected to decline to about 10 per cent by 2027, aided by tighter fiscal and monetary policies. Interest rates, while high, are expected to moderate gradually.
Yields on short-term government securities are forecast to rise in 2025 before easing by 2027, while longer-term bonds are expected to follow a similar trajectory.
Nigeria’s rising debt profile reflects both the government’s efforts to fund development and the vulnerabilities of an economy exposed to currency shocks and limited revenue mobilisation. While the DMO insists the country is still within internationally acceptable thresholds, the pace of increase raises questions about sustainability.
The challenge for policymakers, therefore, is striking a balance: borrowing to stimulate growth without tipping the economy into unsustainable debt.
As the MTDS sets the tone for the years ahead, Nigeria’s ability to execute reforms, manage expenditure, and broaden its revenue base will determine whether today’s fiscal pressures evolve into tomorrow’s crisis—or remain a manageable burden on the path to economic recovery.
