Analysts warn on implications of servicing debt with 72% of revenue

Economists and business analysts have warned that committing nearly three-quarters of government revenue to debt servicing would constrain critical investments in infrastructure, education, healthcare and other essential sectors.
The warning followed the Debt Management Office’s projection in its 2024 Debt Sustainability Analysis, released on Monday, that Nigeria’s debt service-to-revenue ratio could rise to 71.7 per cent by 2030 under its baseline scenario.
The projection is based on assumptions including an exchange rate of N1,500 to the dollar, real Gross Domestic Product growth of 4.8 per cent and a primary balance of 3.8 per cent.

In the first half of 2026, the Federal Government generated approximately N6.2tn in revenue while domestic debt service reached N5.28tn and external debt service stood at $1.82bn.

The World Bank estimated the debt-service-to-revenue ratio at about 124 per cent during the period, using total debt obligations, including state-level debt, against federal revenue.

However, the Ministry of Finance disputed the figure, maintaining that the Federal Government’s direct interest-to-revenue ratio was closer to 60 per cent.

Reacting, an economist, Dr Aliyu Audu, said borrowing was not necessarily harmful but should be tied to productive projects capable of generating revenue and repaying the loans.

He cited railway construction as an example, arguing that such investments should generate income, create jobs and leave the country with lasting assets after the loans have been repaid.

“We should borrow for investments that will generate returns and repay the money. We cannot continue borrowing for consumption,” he said.

Audu questioned why Nigeria continued to struggle with fundamental infrastructure challenges, particularly unreliable electricity, despite repeated borrowing.

He said power infrastructure should be a priority because virtually every sector of the economy depended on electricity, adding that inadequate supply continued to raise the cost of doing business.

Also speaking, a public sector analyst and former Project Director of the Presidential Initiative on Compressed Natural Gas and Electric Vehicle, Engr Michael Oluwagbemi, said debt servicing had declined from about 97 per cent of revenue when President Bola Tinubu assumed office to between 60 and 65 per cent.

He attributed the improvement to debt refinancing, the removal of fuel subsidy and increased government revenue.

While describing the current ratio as still high, Oluwagbemi disagreed with the DMO’s projection, arguing that future revenue growth could reduce the pressure.

He said borrowing for infrastructure that expands productivity and economic output would strengthen government revenue and make debt servicing more sustainable.

Oluwagbemi described borrowing to finance fuel subsidies as wasteful, arguing that such expenditure did not create lasting productive assets.

He projected that if Nigeria’s economy grew from about $400bn to $750bn, government revenue could rise substantially, assuming the revenue-to-GDP ratio remained between 12.5 and 15 per cent.

According to him, increased revenue would provide additional resources for debt servicing without placing excessive pressure on the economy.

He therefore described the DMO’s projection as potentially conservative, arguing that it might not fully account for future revenue growth from infrastructure investments.