Concerns are particularly heightened as the current administration appears set to outpace previous governments in debt accumulation, despite the widespread criticism that accompanied the significant borrowings between 2015 and 2023.
A Stark Comparison in Debt Accumulation
Analysis reveals a striking difference in the pace of debt accumulation between the past two administrations. While the immediate past administration averaged N4.7 trillion in borrowings annually over eight years, the current administration is reportedly accumulating debt at an annual rate of N49.8 trillion over two years. This translates to an annualized growth rate of 99.8 percentage points for Nigeria’s total public debt under the current leadership, a significant jump from the 39.1 percentage points seen in the preceding eight years.
A major factor exacerbating the current debt burden is the depreciation of the Naira. Although the current administration's foreign loan profile averages $1.7 billion annually over two years, compared to the $4.15 billion annual average of the previous administration, the Naira equivalent tells a different story. In Naira terms, the previous regime's foreign loans averaged N2.2 trillion per annum, while the current administration is recording N25.5 trillion per annum. This means the current administration's foreign loan profile is growing at an annual average rate of 130 percentage points, slightly higher than the 119.1 percentage points under the previous government.
Domestically, the current administration is demonstrating an even more aggressive borrowing strategy, with the growth rate hitting 101.5 percentage points over two years, starkly contrasting with the 23.9 percentage points recorded over eight years by the preceding government.
The recent approvals by the National Assembly further underscore this trend, with the Senate approving a global borrowing plan of $21.5 billion and the House of Representatives sanctioning $347 million. Fiscal policy experts predict that the execution of these approvals could push the total public debt beyond N200 trillion before the fiscal year concludes. The bulk of Nigeria's indebtedness is primarily with the Eurobond, World Bank Group, African Development Bank Group, Exim Bank of China, and Agence Francaise Development (France).
Ripple Effects on Businesses and the Economy
The escalating debt profile has sparked serious concerns from various stakeholders, particularly regarding its potential impact on the private sector and overall economic stability.
Devastating for Small Businesses
Dr. Femi Egbesola, President of the Association of Small Business Owners of Nigeria (ASBON), warns that the ripple effect of the rising debt situation is devastating for small businesses. He emphasizes that while borrowing can be beneficial if tied to productive investments, it becomes alarming when debt servicing consumes a significant portion of government revenue, leaving little for developmental projects or crucial support for sectors like health, education, and Micro, Small, and Medium Enterprises (MSMEs).
"At the moment, Nigeria is spending more on repaying debts than on stimulating domestic production or providing an enabling environment for businesses to thrive," Dr. Egbesola stated. He added that high debt servicing pressures often lead to increased taxes, multiple levies, policy instability, and reduced government support for the private sector, ultimately weakening investor confidence, stifling productivity, and limiting access to credit. To safeguard the future, he advocates for revenue diversification, improved tax efficiency, plugging leakages, and channeling borrowings strictly into productive sectors with measurable returns on investment.
The Need for Revenue Diversification
Gabriel Idahosa, President of the Lagos Chamber of Commerce and Industry (LCCI), reiterated the urgent need for the Federal Government to pursue revenue diversification to extricate the country from its debt predicament. He highlighted that the continued increase in debt stock is primarily due to new borrowings and the depreciation of the Naira, which inflates the local currency value of external loans.
Idahosa noted that while domestic borrowing through instruments like bonds, treasury bills, sukuk, and green bonds is insulated from currency volatility, it raises concerns about rising interest rates and the potential to crowd out private sector credit. LCCI remains concerned about the sustainability of the rising debt trajectory and urges improved spending efficiency and better debt management strategies to reduce fiscal pressure and restore macroeconomic stability.
Capacity to Repay: A Major Concern
Olatunde Amolegbe, former President of the Chartered Institute of Stockbrokers (CIS), stressed that while borrowing itself isn't problematic, the capacity to meet repayment obligations should be a primary concern. He pointed out that borrowings from multilateral bodies typically come with relatively favorable terms compared to commercial borrowing. However, he emphasized the critical importance of paying particular attention to how these loans are applied and utilized.
Borrowing Tied to Reforms and Projects
Clifford Egbomeade, an economy analyst and communications expert, acknowledged that the current administration's borrowing request could have both short and long-term implications. Settling outstanding pension obligations, for instance, can provide immediate relief for retirees and stimulate domestic consumption. Similarly, if external loans are concessional and targeted at productive sectors like agriculture, job creation, and infrastructure, they could contribute to broader economic development.
However, Egbomeade cautioned that Nigeria's current debt profile is already high, and debt servicing costs remain a major concern. He emphasized that the success of these measures will largely depend on how efficiently the funds are used and whether they are tied to reforms that boost revenue and reduce waste. Careful planning and transparency, he concluded, are key to ensuring these efforts strengthen the economy rather than deepening fiscal strain.
The Call for Caution
Tunde Abidoye, Head of Equity Research at FBNQuest Merchant Bank, urged for caution given the potential rise in debt service costs and the inherent exchange rate risks associated with foreign-denominated borrowings. He also highlighted the implications for the fiscal space. Abidoye suggested that it is becoming increasingly important for the Debt Management Office (DMO) to develop a new fiscal strategy paper. The last one stipulated a public debt to GDP ratio of 40%, but Nigeria's total public debt was already around 52% of GDP in 2024. The newly proposed loans imply that the debt to GDP ratio will rise significantly, potentially nearing 64% of GDP.
The growing consensus among experts is that while borrowing can be a tool for development, the current trajectory demands a re-evaluation of Nigeria's fiscal strategy. The focus must shift towards sustainable revenue generation, efficient allocation of resources, and a transparent approach to debt management to safeguard the nation's economic future and ensure a conducive environment for businesses to thrive.