Nigeria’s debt servicing soars 49% in four months, exposing fiscal vulnerabilities

Nigeria’s debt service payments jumped by 49.2 percent in the first four months of 2025, hitting $2.01 billion compared to $1.34 billion during the same period in 2024, according to new data from the Central Bank of Nigeria (CBN).

The steep rise in external debt servicing underscores the growing fiscal stress facing Africa’s largest economy, driven by a combination of ballooning public debt, low revenue generation, and sustained currency weakness.

Analysts say the increase is a reflection of Nigeria’s intensifying battle with debt sustainability. The country’s external debt burden—largely contracted in foreign currency—has become more expensive to service amid persistent naira depreciation, which has worsened following multiple currency realignments and a shortage of dollar inflows.

“With the naira hovering around ₦1,600/$ and oil revenues falling short of expectations, Nigeria is paying significantly more to service its dollar-denominated debts,” said a Lagos-based economist. “This leaves less room for capital spending and critical social investments.”

The development aligns with earlier warnings from the International Monetary Fund (IMF), which flagged Nigeria’s deteriorating fiscal position as a key risk to its economic stability. In its 2025 outlook, the IMF projected that Nigeria’s general government deficit would widen to 4.5 percent of GDP in both 2025 and 2026—worse than the 3.4 percent deficit recorded in 2024.

A deeper fiscal deficit implies that the government is spending far more than it earns. In Nigeria’s case, weak tax collection, declining oil production, fuel subsidy expenses, and rising interest payments have all contributed to the widening gap.

Cost of Borrowing and Investor Sentiment

The worsening fiscal balance also implies increased borrowing, both from domestic and external sources. However, analysts caution that Nigeria may struggle to access concessional financing under current macroeconomic conditions, forcing the country to rely more on costlier commercial loans.

“With higher global interest rates, international investors will demand more to hold Nigerian debt. That raises the cost of borrowing, which further amplifies the debt burden,” noted a senior analyst at a West African investment firm.

Investor confidence remains fragile, particularly due to Nigeria’s complex monetary policy environment, opaque subsidy regimes, and the lack of broad-based reforms in revenue collection.

Revenue Shortfalls and FX Challenges

Despite efforts by the current administration to ramp up revenue through fiscal reforms and tax expansion, progress has been slow. Nigeria’s revenue-to-GDP ratio—among the lowest globally—remains below 10%, making it one of the weakest points in its fiscal structure.

At the same time, the government’s ability to build external reserves and maintain FX stability has been hampered by underperforming oil exports, weak foreign portfolio inflows, and a widening trade imbalance.

Implications for the 2025 Budget and Economy

The surge in debt servicing costs is likely to complicate the implementation of the 2025 national budget, particularly if oil prices remain volatile and revenue targets are not met. This could force the government to cut spending on key infrastructure or social programs—or return to the debt markets more aggressively.

“Without urgent and sustained reforms to boost domestic revenue, restructure subsidies, and deepen fiscal transparency, the country risks entering a cycle of debt dependency,” warned a macroeconomic analyst at a multinational development agency.

Way Forward

To reverse this trajectory, experts emphasize the need for:

Broadening the tax base and improving collection efficiency.

Reducing overreliance on oil revenues by diversifying the economy.

Enhancing debt transparency and management, including through concessional borrowing.

Attracting long-term foreign investment by improving governance and investor confidence.

Nigeria’s fiscal outlook remains precarious. While debt in itself isn’t inherently bad, experts say the country must ensure that future borrowing is tied to productive investments that can stimulate growth and generate revenue for repayment.

If the current trajectory continues unchecked, the debt service-to-revenue ratio—already alarmingly high—may soon reach a tipping point that constrains both economic growth and development priorities.