…$1trn economy target under threat, stakeholders warn
By Chinwendu Obienyi
Nigeria’s updated Medium-Term Debt Management Strategy (MTDS) has reignited debate over the country’s debt sustainability, with analysts warning that the government may be expanding its borrowing space at the expense of long-term fiscal stability.
This comes after the Debt Management Office (DMO) recently unveiled the revised framework for 2024–2027, recalibrating targets to reflect weaker macroeconomic conditions and a sharply higher debt stock.
The MTDS, a four-year plan that aligns government expenditure with expected revenues, is designed to provide guardrails on borrowing in line with World Bank/IMF recommendations. It seeks to balance costs (interest and fees) with risks (refinancing, exchange rate, and interest rate) to optimise the Federal Government’s debt portfolio.
The overhaul comes as the government pursues its ambitious goal of building a $1 trillion economy by 2030. But experts fear the strategy risks recycling old borrowing habits rather than driving structural reforms needed for sustainable growth.
Under the new framework, Nigeria’s public debt-to-GDP ceiling was raised from 40 to 60 per cent, while interest payments are capped at 4.5 per cent of GDP. Sovereign guarantees remain limited to 5 per cent. At face value, the new thresholds create more fiscal space for borrowing.
Yet, the timing is contentious. Nigeria’s debt-to-GDP ratio has surged from 19 per cent in 2019 to 52.3 per cent in 2024, driven by fresh loans, the securitisation of N30 trillion in Central Bank overdrafts, and naira depreciation.
Analysts argue the higher ceiling reflects fiscal stress rather than stronger sustainability. At a policy workshop themed “Capital Formation in Nigeria: Empowering Industry, Institutions, and Markets to Drive a $1 Trillion Economy” held at the State House Conference Centre, Abuja, President of the Chartered Institute of Stockbrokers (CIS), Oluropo Dada, stressed that the trillion-dollar ambition is attainable only with deliberate reforms to mobilise capital.
“Nigeria is in dire need of a national savings strategy to mobilise local capital and channel it into productive sectors, particularly manufacturing and technology. Expanding the ceiling to 60 per cent is essentially creating room for more debt, but without a clear path for revenue mobilisation, this only heightens fiscal risks. The government is trying to balance optics with reality, but the reality is sobering”, Dada stated.
The DMO also shifted the debt mix, moving the domestic-to-external ratio from 70:30 to 55:45, raising Nigeria’s reliance on foreign borrowing. While FX debt is capped at 40 per cent of total debt, Nigeria had already breached that limit, with 51.8 per cent as of end-2024.
Similarly, short-term FX debt accounted for 8.3 per cent of external reserves, uncomfortably close to the new 10 per cent ceiling.
Analysts at Afrinvest, in a report titled “Nigeria’s New Debt Playbook… Can the Updated MTDS Restore Fiscal Credibility?” described FX volatility as Nigeria’s biggest fiscal risk.
“Servicing obligations in dollars becomes significantly harder when revenues are in naira and reserves remain strained,” the report stated.
The strategy introduces tighter refinancing rules, capping short-term debt at 5 per cent of GDP, compared with the old benchmark linked to total debt stock. But Nigeria is already above the threshold, with short-term debt at 6.95 per cent of GDP in 2024.
On interest rate risks, the MTDS sets new safeguards: minimum average time to refixing at 10 years, debt refixing within one year capped at 15 per cent, and NT-Bills limited to 10 per cent of the portfolio. These measures aim to reduce rollover risk, but analysts warn that high inflation (21.88 per cent) and elevated domestic yields will keep borrowing costs high.
Chief Executive Officer, Cowry Asset Management Limited, Johnson Chukwu, noted that although the federal government has positioned the debt strategy as part of a broader push toward achieving a $1 trillion economy by 2030, the MTDS offers little assurance that debt will be channeled into productive investments capable of driving sustainable growth.
“Without meaningful improvements in revenue performance, raising borrowing limits does not automatically translate into growth. It risks creating a cycle of borrowing to refinance existing obligations”, Chukwu said.
With oil output still under 2 million barrels per day and non-oil revenues struggling, fiscal buffers remain thin. Rising debt service already consumes a large share of revenues, leaving little for capital expenditure, a trend analysts say could derail Nigeria’s trillion-dollar ambition.
Leave a comment