By Chinwendu Obienyi
Nigeria’s rising debt profile is entering discomforting quarters, as concerns shift from the sheer size of borrowings to the growing risks associated with refinancing existing obligations.
With the recent revelation from the Debt Management Office (DMO) of the country’s debt standing at N159 trillion, the structure, cost and maturity profile of the country’s liabilities are becoming increasingly critical to macroeconomic stability.
According to the debt office, Nigeria’s total public debt climbed to N159.28 trillion in the fourth quarter (Q4) of 2025, reflecting a steady accumulation driven by persistent fiscal deficits and weak revenue performance.
Domestic debt, which accounted for 53.3 per cent of total public debt, it said, climbed by 3.7 per cent quarter-on-quarter (q/q) to N84.85 trillion (Q3: N81.82 trillion). This growth reflected increases in both state government debt (+8.9 per cent q/q) and federal government debt (+3.4 per cent q/q).
Similarly, external debt, making up 46.7 per cent of the total, rose more sharply by 7.0 per cent q/q to $51.86 billion, compared with a 3.1 per cent increase in the previous quarter ($48.46 billion).
The uptick was driven by higher disbursements from multilateral lenders, including the World Bank ($347.04 million) and the African Development Bank Group ($93.48 million), as well as increased borrowings from bilateral sources (+6.9 per cent q/q). Notably, syndicated loans surged by 89.0 per cent q/q, largely tied to capital project financing.
The latter, often priced at commercial or near-commercial rates, signals a gradual shift away from cheaper concessional financing toward more expensive funding sources.
This evolution in Nigeria’s borrowing mix has important implications. Unlike concessional loans from institutions such as the World Bank and the African Development Bank Group, syndicated and other market-based loans typically carry shorter maturities and higher interest rates. As a result, they increase the frequency and cost of refinancing, exposing the government to rollover risks, especially in periods of tightening global liquidity.
Refinancing risk arises when a borrower must replace maturing debt with new obligations, often under less favourable conditions. For Nigeria, this risk is no longer theoretical. As global interest rates remain elevated and investor appetite for frontier market debt fluctuates, the cost of issuing new debt, or rolling over existing facilities, could rise significantly. This would further strain public finances already stretched by low revenue mobilisation.
Compounding the challenge is Nigeria’s exposure to exchange rate volatility. Although the naira appreciated in Q4 2025, moderating the local currency value of external debt, such gains may prove temporary. A reversal in currency stability would quickly inflate debt service obligations in naira terms, intensifying fiscal pressures and complicating budget execution.
The implications extend beyond fiscal arithmetic. Higher external debt servicing requirements place direct pressure on the country’s foreign exchange reserves, as repayments must be made in hard currency. This can constrain the central bank’s ability to stabilise the naira and meet other external obligations, while also crowding out private sector access to foreign exchange.
At the same time, Nigeria’s decision to chart an independent fiscal path adds another layer of complexity. The government has recently rejected the prospect of a fresh programme with the International Monetary Fund, maintaining that its ongoing reforms, ranging from fuel subsidy removal to exchange rate liberalisation, are sufficient to restore macroeconomic stability.
While this stance underscores a commitment to policy autonomy, it also removes a potential source of concessional financing and external policy support. IMF programmes often serve as a signal of credibility to international investors, helping to anchor expectations and lower borrowing costs. Without such backing, Nigeria must rely more heavily on market confidence, which can be volatile and sensitive to policy slippages.
This places a premium on the effectiveness of ongoing reforms. Efforts to boost government revenue, particularly through tax administration and oil sector reforms, will be critical in reducing the need for additional borrowing.
Similarly, maintaining exchange rate stability and curbing inflation will be essential in preserving investor confidence and limiting the cost of new debt issuance.
Yet, structural challenges persist. Nigeria’s revenue-to-GDP ratio remains among the lowest globally, limiting fiscal space and increasing dependence on debt financing. At the same time, debt service-to-revenue ratios remain elevated, meaning a substantial portion of government income is already committed to servicing existing obligations. This dynamic leaves little room for error.
The projected expansion of the fiscal deficit in 2026 further underscores the scale of the challenge. With the government budgeting a deficit of over N30 trillion, well above some independent estimates, borrowing is expected to remain elevated. This will likely push total public debt toward N179 trillion or higher, reinforcing concerns about sustainability.
Experts’ react
For investors and analysts, the key question is not simply whether Nigeria can continue to borrow, but at what cost and under what conditions. As refinancing needs grow, the country may face higher yields on both domestic and external instruments, reflecting increased risk perceptions.
This, in turn, could create a feedback loop, where rising borrowing costs worsen fiscal metrics, further elevating risk premiums.
Chief Economist, SPM Professional, Paul Alaje explained that owing to the Middle East crisis, Nigeria’s economy is already facing rising transport costs, higher food prices, and broader inflation as global energy prices filter through local supply chains.
“When this crisis started, I had said we need to strengthen our domestic refining capacity, manufacturing capability, and regional trade integration. There are also broader economic implications.
Increased government borrowing, particularly from domestic markets, can crowd out private sector access to credit, dampening investment and growth. Meanwhile, external borrowing pressures could weigh on the balance of payments, especially if oil revenues fail to keep pace with rising obligations”, Alaje said.
Speaking recently, the Chief Executive Officer, Centre for Promotion of Private Enterprises (CPPE), Dr Muda Yusuf, repeatedly warned that the country’s debt accumulation, especially amid weak revenue, poses serious macroeconomic risks.
He expressed concern about Nigeria’s borrowing spree not being matched by commensurate revenue growth, creating a dangerous imbalance.
Whilst arguing that rising debt in the face of dwindling government income is “not healthy for the economy, Yusuf stressed that a significant share of revenues is already tied up in debt servicing.
“I have often said that there is no problem with borrowing but the problem is the quality of borrowing. Using debt to fund recurrent expenditure rather than productive investments, does little to generate the growth needed to service the debt in the future”, He said.
Instead, the CEO who also doubles as an economist, advocates prioritising capital projects, improving spending efficiency, and leveraging public-private partnerships to reduce reliance on borrowing.
Despite these risks, Nigeria retains some buffers. Its debt-to-GDP ratio, projected at around 35 per cent in 2026, remains moderate compared to many peer economies. However, analysts caution that this metric can be misleading in the Nigerian context, where low revenues, not necessarily high debt levels, are the primary constraint.
Conclusion
Ultimately, the sustainability of Nigeria’s debt trajectory will hinge on its ability to manage refinancing risks while accelerating structural reforms. This includes lengthening the maturity profile of debt, prioritising concessional financing, and improving the efficiency of public spending.
As the country moves toward a projected N180 trillion debt stock, the focus is shifting decisively from accumulation to management. In an environment of tighter global financial conditions and domestic economic uncertainty, the cost of missteps is rising.
The challenge is no longer just about borrowing to bridge fiscal gaps, but about ensuring that today’s debt does not become tomorrow’s crisis.
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