Nigeria faces debt trap as public debt soars amid rising fiscal risks

Nigeria is facing intensifying scrutiny from economists and financial analysts as the country’s debt trajectory continues to spiral, sparking fears of a full-blown debt trap and potential sovereign default.

The situation escalated in 2025, with President Bola Tinubu’s administration seeking parliamentary approval for a fresh $21.5 billion external loan, alongside a ¥15 billion Japanese loan and a €51 million grant.

This aggressive borrowing plan has drawn sharp warnings from experts who say Nigeria may already be borrowing to repay existing loans — a classic symptom of a debt trap.

Analysis of data from the Debt Management Office (DMO) reveals that Nigeria’s public debt in naira terms has surged by a staggering 1,048% in less than a decade — from N12.6 trillion in 2015 to N144.7 trillion in 2024.

While the rise in dollar terms appears more moderate, increasing from $65.43 billion in 2015 to $94.23 billion in 2024 (a 44% increase), the massive 697% devaluation of the naira — from N192.63/$ to N1,535.32/$ — has amplified the real cost of debt servicing.

This means Nigeria is now paying over 7 times more in naira for every dollar of its foreign debt, even if the dollar amount hasn’t drastically changed.

The government’s borrowing strategy includes a mix of domestic instruments such as FGN bonds, treasury bills, and savings bonds, and external loans denominated in dollars, euros, yen, and yuan.

In 2024 alone, the federal government borrowed N46 trillion, pushing its own debt share to N133 trillion, and lifting the national total to N144.7 trillion, according to Afrinvest data.

“We are already in a debt trap,” said David Adonri, Vice Chairman of Highcap Securities.

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“In just two years of this administration, the debt has doubled what the previous administration accumulated in eight years. Without urgent de-leveraging, insolvency could be imminent.”

Adonri also warned that while domestic debt can be serviced through Ways and Means (money printing) at the risk of hyperinflation, foreign debt requires scarce hard currency, placing Nigeria at risk of default if reserves dry up.

Despite efforts by the Tinubu administration to grow revenue — which rose to N34 trillion in 2024, according to the CBN — the federal government retained only N9.44 trillion for its own budget after statutory deductions to states and revenue-generating agencies.

At the same time, the federal government spent N25 trillion, creating a budget deficit of N15.6 trillion in 2024 alone.

“The exchange rate collapse has multiplied our debt burden,” said Damilare Asimiyu, Head of Research at Afrinvest.

“With the naira falling from N187/$ in 2014 to N1,550/$ in 2024, the naira cost of each dollar of debt has risen more than fifteenfold. Although foreign debt is just 38% of the total, it is the most volatile and most dangerous component.”

Analysts agree that borrowing is not inherently bad if tied to productive projects, but stress that loan utilization has been poor in many cases.

“Debt must be linked to economic projects with measurable returns and repayment plans,” said Ayegbeni Kanabe, Chief Compliance & Risk Officer at Zigma-Alpha Asset Management.

“The issue is misapplication. If loans improve infrastructure and productivity, repayment becomes easier. Otherwise, it becomes a burden passed onto future generations.”

Though Nigeria earned N34 trillion in 2024, the federal government retained only N9.44 trillion due to revenue sharing. Weak non-oil tax collection remains a major bottleneck.

Debt service rose from N8 trillion in 2024 to a projected N16 trillion in 2025, consuming a growing portion of the national budget and crowding out development spending.

Around 48.59% of Nigeria’s debt is external, exposing the country to interest rate fluctuations, foreign exchange shocks, and international lending conditions.

As Nigeria’s debt burden balloons, experts are calling for comprehensive fiscal reform, improved revenue collection, and more prudent borrowing practices focused on infrastructure, productivity, and export expansion.