Debt Service Rises to 4.1% of GDP Amid Higher Borrowing Costs

Nigeria’s debt servicing costs rose to 4.1 per cent of its Gross Domestic Product (GDP) in 2024, up from 3.7 per cent the previous year, according to the latest Country Focus Report by the African Development Bank (AfDB).

The increase underscores the mounting burden of debt repayment on Nigeria’s finances, as the government contends with tightening global credit conditions, elevated domestic interest rates, and a weakened currency.

According to the AfDB, the higher debt servicing figure reflects both increased interest payments on government securities and new borrowing needed to cover the persistent budget deficit.

Public Debt Climbs Sharply to 52.3% of GDP

The report highlights a notable rise in Nigeria’s overall public debt, which climbed to 52.3 per cent of GDP in 2024 from 41.5 per cent in 2023. Analysts attribute the jump to expanded financing needs as well as the naira’s depreciation, which has amplified the cost of servicing external debt.

The Federal Government raised $3.3 billion in new debt in 2024 alone, including $2.2 billion through Eurobond issuance and the remainder from multilateral lenders.

Debt Servicing Consumes Over 77% of Federal Revenue

Beyond the GDP share, the AfDB report also draws attention to Nigeria’s debt servicing-to-revenue ratio, which rose from 76.8 per cent in 2023 to 77.5 per cent in 2024.

This metric highlights the immense strain debt repayments place on government finances, with more than three-quarters of federal revenue dedicated to servicing debt obligations.

“Debt service obligations gulp a significant portion of Nigeria’s fiscal resources,” the report warns. “Limited fiscal space is constraining the capacity to meet pressing development priorities.”

Fiscal Deficit Narrows Slightly, But Pressures Remain

While the fiscal deficit showed a marginal improvement—narrowing from 4.0 per cent of GDP in 2023 to 3.9 per cent in 2024—the AfDB cautions that overall pressures on public finances remain elevated.

The government’s reform programme, which includes the removal of fuel subsidies and unification of the exchange rate, has contributed to stronger revenue mobilisation. Still, these gains have yet to fully offset the scale of spending requirements and debt obligations.

Weak Domestic Revenue Mobilisation a Persistent Challenge

Nigeria’s tax-to-GDP ratio remains among the lowest in sub-Saharan Africa at just 5.2 per cent, reflecting longstanding challenges in expanding the revenue base.

The AfDB identifies the country’s large informal economy—accounting for an estimated 68 per cent of total output—and informal employment exceeding 90 per cent as key barriers to improving tax collection.

The report calls for urgent reforms to broaden the tax base, enhance compliance through digital tax systems, and build stronger institutional capacity.

Funding Gap Hinders Development Goals

Despite efforts to improve revenue generation, Nigeria continues to face a significant development financing gap.

The AfDB estimates the country’s annual financing needs at $47.6 billion, with a shortfall of $31.5 billion particularly affecting infrastructure, innovation, and social services critical to achieving the Sustainable Development Goals (SDGs).

Government Spending Lags Regional Peers

Total government expenditure was recorded at 15.5 per cent of GDP in 2024, well below the sub-Saharan African average of 21.4 per cent.

Spending on human capital development remains especially weak, with education and health allocations standing at just 7.9 per cent and 5.3 per cent of total expenditure, respectively—figures far short of international benchmarks.

According to the AfDB, this underfunding limits progress on critical development goals and hampers efforts to improve living standards across the country.

Moderate Economic Growth Forecast Amid Global Risks

Nigeria’s economy expanded by 3.4 per cent in 2024, buoyed by services sector growth and a modest increase in oil output. However, the AfDB projects a slight slowdown in the coming years, with GDP growth expected to moderate to 3.2 per cent in 2025 and 3.1 per cent in 2026.

The bank attributes this anticipated deceleration to continued global uncertainties, including weaker oil prices and trade tensions that could affect demand.

Call for Structural Reforms and Investment

To address these challenges, the AfDB recommends that Nigeria intensify its economic and structural reform agenda.

Key priorities identified include investing more in infrastructure, education, and healthcare; improving tax administration; streamlining public expenditure; and attracting private capital through innovative financing instruments.

The bank warns that without decisive action, rising debt service costs will continue to limit the government’s capacity to fund critical development needs, leaving the country vulnerable to both domestic and global economic shocks.