By Samuel Ochinyabo
The release of government borrowing figures in Nigeria by the Debt Management Office (DMO) always elicit debates in economic circles. Nigeria’s debt has risen to ₦149.3 trillion, and debt service is swallowing a huge portion of revenues, and future generations are being mortgaged—these are some of the narratives. These concerns are valid, but they are not the whole story. The critical question is not whether Nigeria borrows, but rather how it borrows, what it borrows for, and whether debt is used as an instrument of growth or as a trap of dependency. Properly managed, public debt is not an enemy of progress but a catalyst for development. From the United States after the Great Depression to post-war Japan to today’s China, Ethiopia, and Rwanda, borrowing has been central to building modern economies.
Nigeria, too, can turn debt into a lever for economic transformation if it only adopts a disciplined and strategic approach. An example is the forgiveness of approximately $18 billion in external obligations by the Paris Club of Creditors, which provided the country with a fresh fiscal start, supporting GDP growth rates of 6–7% between 2006 and 2014. Yet, less than two decades later, the debt stock has ballooned once again to $149.3 billion in Q1 2025 (DMO, 2025), raising fears of falling back into a debt trap.This debt profile has grown sharply due to heavy borrowing to finance infrastructure projects, close fiscal deficits, and stabilize the economy amid oil price volatility and global shocks. For instance, between 2015 and 2023, Nigeria’s debt stock rose from about ₦12 trillion to nearly ₦80 trillion, driven by declining oil revenues, insecurity challenges, and rising public expenditure.
As Africa’s largest economy and most populous nation, Nigeria’s ability or inability to manage its debt burden has profound implications not just for its citizens but for the entire region. While these concerns are valid, a single-story narrative risk obscures a fundamental truth: public debt, when properly managed, is not a curse but a catalyst for development. This financial instrument is a means of mobilizing resources to meet urgent national priorities. A developing country like Nigeria cannot afford to shy away from borrowing; it must confront the scale of its development deficit. The World Bank estimates that Nigeria requires over $3 trillion in infrastructure investment by 2050 (World Bank, 2022). Electricity generation barely exceeds 4,500 megawatts for a population of more than 220 million that is expected to hit 450 million in 2050, compared to South Africa’s 50,000 megawatts for less than 65 million people. Road networks are dilapidated, public hospitals are underfunded, and educational infrastructure is inadequate.
Relying solely on oil revenues and limited taxation cannot close these gaps. Nigeria’s tax-to-GDP ratio of about 13.5% is among the lowest in the world. The Federal Government’s annual budget, around ₦27 trillion in 2024 and ₦54.99 trillion in 2025, is dwarfed by the size of the economy and the needs of the population. Without strategic borrowing, Nigeria risks locking itself in a cycle of underdevelopment: poor infrastructure discourages investment, low productivity reduces revenues, and weak revenues perpetuate borrowing for consumption instead of production. If the government waits to accumulate savings before building them, development will stall for decades. Borrowing bridges that gap. Far from being a fiscal death sentence, public debt can be the lifeline Nigeria needs to unlock growth, modernize infrastructure, and expand opportunities for its people, especially the youths.
The International Monetary Fund (IMF) emphasizes that debt sustainability is less about the absolute size of debt and more about whether an economy can service it without destabilization. Countries like Japan and the U.S. carry debt-to-GDP ratios above 100%, yet their economies function well because borrowed funds are channelled productively, revenues are robust, and institutions are strong. Nigeria’s debt-to-GDP ratio, which is 52.13% in 2024, with rebased GDP putting it at 39.4%, is still considered moderate by international standards. The real challenge lies in poor revenue generation and misuse of borrowed funds.
For public debt to stimulate economic growth, it must meet certain conditions, among which are that public debt must finance productive investment, not consumption; it must be transparently managed; and it must be complemented by reforms that boost revenue. Furthermore, revenue sources must be diversified. If these conditions are met, debt becomes a growth multiplier rather than a fiscal nightmare. A critical factor in debt sustainability is revenue. Nigeria’s current debt-service-to-federal-government-revenue ratio has been high at 77.5% in 2024. This does not necessarily mean borrowing should stop; it means revenue must grow. This can be achieved by broadening the tax base, plugging leakages, rationalizing subsidies, and expanding non-oil exports. With stronger revenues, debt service becomes manageable, and borrowing can be directed toward long-term development rather than short-term survival.
Nigeria’s debt story is a cautionary tale. What should have been a ladder to prosperity has become a weight dragging the economy down. Borrowing has stifled growth by crowding out investment, fuelling inflation, weakening institutions, and burdening future generations. Much of Nigeria’s debt is external and denominated in foreign currencies. This creates additional risks. Whenever the naira depreciates, the cost of repaying dollar- or euro-denominated loans rises dramatically. The recent slide of the naira, trading above ₦1,500 to the dollar in 2025, has worsened Nigeria’s debt burden. What was once a manageable loan suddenly balloons in local currency terms. Servicing external debt drains foreign reserves, puts pressure on the balance of payments, and undermines investor confidence. Countries like Zambia and Ghana that ignored these dynamics eventually fell into debt distress. The nation must move from a debt service economy to a development economy or risk condemning its citizens to perpetual poverty. The cost of debt servicing is enormous, gulping over 80% of Nigeria’s federal revenue and crowding out investments that could stimulate growth. The government then borrows again, creating a vicious cycle of dependency, making some analysts term Nigeria a “debt service economy.”
The debt conversation often focuses on the federal government, but states cannot be divorced from Nigeria’s debt debacle, as they are increasingly active borrowers. While some states borrow recklessly to fund consumption, others have used debt creatively. Lagos State, for example, leveraged bonds to finance transport and infrastructure projects that expanded its economic base. If states emulate this model of tying debt to revenue-generating projects, the benefits will multiply nationwide.
If Nigeria fails to confront its debt challenges decisively, the long-term costs could be severe. Rising debt may lead to credit downgrades, higher borrowing costs, reduced investor confidence, and potential default. Worse, future generations will inherit obligations that limit their opportunities for prosperity. Already, warnings from international institutions are clear. The World Bank has flagged Nigeria’s fiscal deficit and debt service ratios as unsustainable. The International Monetary Fund (IMF) has urged reforms to improve revenue generation and expenditure efficiency.
Rather than fear debt, Nigeria must reframe the debate: Borrowing is not the problem; unproductive borrowing is. Debt does not mortgage the future; failure to invest in the present does. The choice is not between debt and no debt, but between debt that grows the economy and debt that weakens it. Public debt can either be a burden or a blessing. For Nigeria, the challenge is to shift from borrowing for survival to borrowing for transformation. This requires a new social contract: government commits to using debt transparently and productively, while citizens demand accountability and support reforms that expand revenue. If this shift occurs, debt will cease to be a source of fear and become a pillar of hope. Nigeria’s future generations will not inherit a mountain of liabilities but a legacy of modern infrastructure, thriving industries, and inclusive growth.
However, a coordinated national debt management strategy is vital. The Debt Management Office (DMO) must strengthen its oversight role to ensure both federal and subnational debt remain sustainable and productive. Future loans must be tied strictly to projects with measurable economic returns. Nigeria’s tax-to-GDP ratio, at around 10%, is low, so expanding the tax net and diversifying the economy are urgent. Transparent project pipelines, citizen oversight, and strict sanctions are essential to ensure loans are used productively. The over-exposure to foreign-currency debt increases vulnerability, while a balanced mix reduces risks. In Nigeria, public debt has been sometimes useful, often wasteful, and increasingly risky. Now, it is time to let public debt grow the Nigerian economy, not stifle it.
Samuel Ochinyabo is a Research Fellow of the Nigerian Institute of Social and Economic Research, Ibadan, Nigeria.
ochinyabos@gmail.com
