- Debt servicing gulps 147% of government revenue
- Growing debt burden poses significant risks to economy – Experts
- Raise concerns about country’s fiscal sustainability
The Federal Government spent a staggering N8.94 trillion on debt servicing in the first nine months of 2024, accounting for nearly half (47%) of total government expenditure within the period.
This figure represents a sharp increase of 56.8 percent compared to the N5.69 trillion spent during the same period in 2023, raising serious concerns about the country’s fiscal sustainability.
An analysis of data from the quarterly statistical bulletin released by the Central Bank of Nigeria revealed the growing burden of Nigeria’s debt obligations amidst an expanding fiscal deficit, highlighting significant challenges in managing the nation’s finances effectively.
The debt-to-revenue ratio, a critical metric for assessing fiscal health, deteriorated significantly during this period.
Debt servicing consumed a whopping 147 percent of retained government revenue in the first nine months of 2024, up from 132 percent in the same period of 2023.
The government generated N6.08 trillion in retained revenue but spent far more on servicing debts, illustrating an alarming trend of borrowing not only to fund budgetary needs but also to meet existing debt obligations.
This pattern underscores a growing reliance on unsustainable fiscal practices.
Government spending continued to rise sharply, with recurrent expenditure increasing by 45.6 per cent to N15.11 trillion, compared to N10.38 trillion during the same period in 2023.
A closer look at key components of recurrent spending reveals that spending on personnel rose by 20 per cent to N3.59 trillion, compared to N2.99 trillion in 2023.
Overhead costs surged by 51.4 per cent from N589.63 billion in 2023 to N892.85 billion in 2024, while transfers more than doubled, climbing 83.8 per cent to N1.31 trillion from N711.3 billion.
In contrast, spending on pensions and gratuities saw a marginal decline, dropping from N339.66 billion in 2023 to N336.61 billion in 2024.
While capital expenditure also recorded growth, rising by 20.8 per cent to N3.86 trillion from N3.19 trillion in 2023, it was modest compared to the surge in recurrent spending.
This imbalance highlights how rising debt obligations are crowding out essential investments in infrastructure and other critical sectors.
The fiscal deficit, which is already a source of concern, expanded by 39.3 percent in the first nine months of 2024.
It rose from N9.25 trillion in 2023 to N12.89 trillion in 2024, reflecting the widening gap between government revenue and expenditure.
The escalating debt servicing costs have further compounded this challenge, leaving little room for other critical spending.
During his address to the nation on Nigeria’s 64th Independence Anniversary on October 1, 2024, President Bola Tinubu stated that his administration had reduced the debt service-to-revenue ratio from 97 per cent to 68 per cent.
He emphasized the importance of ending the cycle of borrowing to finance public spending, arguing that the country could no longer afford a situation where 90 per cent of its revenue was consumed by debt servicing.
However, the latest figures from the CBN contradict the president’s claims, showing a worsening debt service-to-revenue ratio of 147 per cent in 2024. This stark disparity between official statements and actual data has sparked criticism and concern among financial analysts.
The Lagos Chamber of Commerce and Industry had said in a statement signed by Director General, Chinyere Almona, that reliance on borrowing to fund budget deficits, without considering alternative financing strategies, poses a grave risk to infrastructure development and economic stability.
It noted that rising debt servicing obligations could outpace allocations for critical projects in the 2025 federal budget, exacerbating the nation’s infrastructure deficit.
The LCCI also expressed concerns about currency volatility, with the depreciating Naira increasing the burden of dollar-denominated debt servicing.
To address these challenges, the LCCI recommended several measures, which include that the government should ensure transparency and accountability in deploying the borrowed funds.
According to the LCCI, the funding of critical business-supporting infrastructure like electricity supply, security for food production and logistics and enablers manufacturing should be of utmost importance.
It noted that beyond borrowing, the Federal Government should intensify efforts to expand the non-oil revenue base through tax reforms, improved compliance, and the promotion of export-driven sectors like agriculture and manufacturing.
Urgent steps according to the Chamber are required to stabilize the naira and address the structural issues in the foreign exchange market to reduce the negative impact of external borrowing.
It added that greater reliance on PPPs for infrastructure development can reduce the pressure on public borrowing while encouraging private sector participation and efficiency.
Analysts have also called for greater transparency regarding the terms and conditions of the proposed loans.
They also stressed the importance of ensuring that the borrowed funds are efficiently utilized and tied directly to projects that deliver measurable economic benefits.
According to the Registrar of the Chartered Institute of Finance and Control, Godwin Eohoi, the growing burden of debt servicing, coupled with a widening fiscal deficit and declining fiscal space, raises serious questions about Nigeria’s long-term fiscal sustainability.
Without significant reforms to address these issues, he said the country risks being trapped in a vicious cycle of borrowing and debt repayment, with little left for critical national development.
The Director and Chief Economist at Proshare Nigeria LLC, Teslim Shitta-Bey, warned that the rising debt burden on Nigeria’s subnational governments is likely to challenge their fiscal stability in the coming years.
He stressed that most state governments, along with the Federal Government, have failed to effectively manage their balance sheets.
Shitta-Bey stated, “The challenge here is that most of the governments, including the Federal Government are unable to manage their balance sheets properly. While borrowing might seem like an easy way to run operations, it is not necessarily the right approach.”
According to Shitta-Bey, borrowing should not be the default solution for governments.
“Governments could consider longer-term debt structures that resemble equity, which might actually be more beneficial in the long run,” he explained.
The expert also called for a comprehensive register of national assets to help states raise capital.
He used the example of the National Stadium, which has not been used for major activities in over a while.
“Why should the Federal Government continue holding onto something like the National Stadium when it’s not being utilized? These assets should be generating revenue,” he said.
Shitta-Bey suggested that the government could hold onto such assets but with a clear plan to create tax revenue.
He further recommended that there should be a national census of financial assets, which could be used to raise funds through the capital market.
“We need a census for financial assets so that these assets can be used to raise funds through the capital markets,” he said.
He added that borrowing is not inherently wrong, but it should serve a specific purpose.
“Borrowing money is not bad, but it should be for a purpose. It’s like taking on a debt to fund a long-term investment,” he noted.
Also, the Group Managing Director of Cowry Asset Management Limited, Johnson Chukwu, raised concerns over Nigeria’s rising debt profile, warning that the growing debt burden poses significant risks to the economy and could hamper the government’s ability to invest in critical infrastructure and social services.
Chukwu cautioned that as debt servicing costs continue to climb, the government’s resources will be increasingly crowded out, leaving limited funds for essential development projects.
“The risk of high debt servicing will ultimately lead to a struggle in addressing the social and infrastructure needs of the people,” he said.
He explained that with dwindling resources, the government may face challenges in constructing roads, providing quality healthcare, and meeting other essential needs.
To mitigate this, Chukwu advised the government to explore avenues for attracting commercially viable infrastructure investments, particularly through partnerships with the private sector.
“If the government can attract private sector funding for infrastructure, it will reduce the pressure on public resources and allow the government to focus on other critical areas,” he added.
Eight states to pay N424bn on debt servicing in 2025
At the sub-national level, eight states are to pay a combined N424.28bn in debt service and to borrow N1.21trn over the next two years, with financial commitments slated for 2025 and 2026.
According to the states’ medium-term fiscal frameworks, the eight states in review – Abia, Adamawa, Bauchi, Borno, Kebbi, Osun, Benue, and Kano – are projected to experience varying debt service and borrowing trends.
The analysis indicates differences between 2025 and 2026, with some states facing substantial increases in debt service while others focus on reducing borrowing.
An analysis of the MTEF document of the states shows that Abia’s public debt service is set to rise by 2.49 per cent, from N23.29bn in 2025 to N23.87bn in 2026.
The state’s borrowing is also expected to increase by 2.49 per cent, from N364.11bn in 2025 to N373.21bn in 2026.
Adamawa State is to experience a dramatic 170.56 per cent increase in its public debt service, from N29.19bn in 2025 to N78.99bn in 2026.
Despite this rise, the state is not expected to borrow any new funds during this period.
Bauchi’s public debt service is projected to rise by 22.9 per cent, from N31.23bn in 2025 to N38.38bn in 2026.
The state’s borrowing, however, is set to decrease by 35.92 per cent, from N71.42bn in 2025 to N45.77bn in 2026.
Borno’s public debt service is expected to increase by 10.02 per cent, from N20.29bn in 2025 to N22.32bn in 2026. The state is also projected to borrow more in the coming years, with an increase of 3.97 per cent in its borrowing, from N91.90bn in 2025 to N95.56bn in 2026. This rise in both debt service and borrowing reflects the state’s ongoing recovery efforts.
For Kebbi State, the public debt service is projected to increase from N1.77bn in 2025 to N2.47bn in 2026, reflecting a 39.4 percent increase.
Similarly, financing loans are expected to rise from N35.12bn in 2025 to N38.7bn in 2026, showing a 10.3 percent increase.
Osun State is not expected to borrow any new funds during the 2025-2026 period.
However, its public debt service will rise by 5.57 per cent, from N23.38bn in 2025 to N24.68bn in 2026.
Benue’s public debt service is projected to increase by 2.13 per cent, from N40.07bn in 2025 to N40.92bn in 2026. The state’s borrowing, however, is expected to decrease by 20.05 per cent, from N42.62bn in 2025 to N34.10bn in 2026.
Kano’s public debt service is expected to decrease slightly by 0.51 per cent, from N11.73bn in 2025 to N11.67bn in 2026. The state’s borrowing is set to fall dramatically by 47.86 per cent, from N11.08bn in 2025 to N5.75bn in 2026.
The total public debt service for the eight states is projected to be N180.95bn in 2025, with an increase to N243.33bn in 2026, bringing the total public debt service for the two years to N424.28bn.
Regarding financing (loans), the total for 2025 is expected to be N616.25bn, while it is projected to decrease slightly to N593.09bn in 2026.
This results in a total financing (loans) figure of N1.21tn for the 2025 – 2026 period.
These figures highlight the significant financial commitments these states are facing in the coming years, driven by rising debt obligations and continued borrowing.
About N3.87trn has been allocated for recurrent expenditure across 13 Nigerian states in their proposed budgets for the 2025 fiscal year.
