Nigeria’s public debt has ballooned to critical levels, raising red flags among economic analysts who warn that the country is inching dangerously close to a full-fledged debt trap. In such a scenario, the government would be forced to rely on new loans simply to settle existing obligations—a precarious cycle that can trigger broader economic fallout.

Even more troubling is the growing fear of a possible sovereign default, which could result from Nigeria’s inability to meet its debt repayment commitments. Experts say that without bold and immediate fiscal reforms, the country risks becoming mired in an unsustainable debt burden that could cripple future development.

Debt Skyrockets Over the Last Decade

Over the past ten years, Nigeria’s public debt has increased exponentially in local currency. Between 2015 and 2024, the total public debt surged from ₦12.6 trillion to ₦144.7 trillion, representing a staggering 1,048% increase. Although the rise in dollar terms was more moderate—from $65.43 billion to $94.23 billion, or a 44% jump—the local economic impact has been devastating.

This enormous disparity stems from the sharp depreciation of the naira. The national currency fell from ₦192.63 per dollar in 2015 to ₦1,535.32 per dollar by 2024, a nearly 700% plunge. Consequently, Nigeria now pays significantly more in naira to service the same amount of foreign debt, placing immense pressure on public finances.

External Debt Repayments Worsen Budget Strains

This steep devaluation has made foreign debt servicing far more expensive in real terms. Even though the actual dollar amounts owed have not changed drastically, the cost to the Nigerian government has multiplied due to the weakened naira.

Moreover, the local debt load has grown as well, largely due to extensive borrowing through government instruments such as Federal Government of Nigeria (FGN) bonds, treasury bills, and savings bonds. The combination of these domestic and external liabilities has stretched the nation’s budget to its limits.

Tinubu Administration Requests More Loans Amid Fiscal Pressure

As Nigeria’s financial obligations continue to rise, the federal government under President Bola Tinubu has sought fresh loans to manage the burden. In 2025, the administration asked the Senate to approve an external borrowing plan amounting to $21.5 billion. Additionally, the president is pursuing a ¥15 billion loan from Japan and a €51 million grant from development partners as part of the 2025–2026 borrowing framework.

Government officials argue that these loans are necessary to finance critical infrastructure projects and social development programs. However, many financial experts view the continued borrowing as a short-term fix that could worsen the debt spiral if not paired with revenue growth and prudent spending.

Debt Servicing Consumes National Revenue

One of the most troubling aspects of Nigeria’s current financial situation is the amount of revenue dedicated solely to servicing debt. In some months, debt repayments exceed total government income. For instance, in January 2024, Nigeria generated ₦449.7 billion in retained revenue but spent ₦755.9 billion on debt service—a shocking 168% debt-service-to-revenue ratio.

This level of imbalance is unsustainable. It means the government must either borrow more or cut essential services just to meet its loan obligations. Experts warn that this fiscal pattern puts Nigeria on the brink of default unless urgent corrective actions are taken.

Debt Could Exceed ₦180 Trillion by Year-End

Financial analysts predict that Nigeria’s total debt could exceed ₦180 trillion by the close of 2025 if current trends persist. This figure would push the country’s debt-to-Gross Domestic Product (GDP) ratio to dangerous levels—far above the federal government’s self-imposed ceiling of 40%.

As of Q3 2024, the debt-to-GDP ratio had already climbed past 52.8%, with warnings that further increases could compromise Nigeria’s ability to fund key services such as healthcare, education, and infrastructure development. When debt reaches this scale, it becomes difficult to attract investment or maintain economic stability.

Risk of Sovereign Default on the Horizon

A growing number of economists believe Nigeria is inching closer to a sovereign default. With revenue falling short and interest payments rising rapidly, the country may soon find itself unable to meet repayment schedules.

International credit rating agencies have also flagged Nigeria’s fiscal deterioration. Some have placed the country on watch for potential downgrades, citing high debt servicing costs, limited revenue, and weak policy implementation as primary concerns.

History shows that sovereign defaults can have long-term consequences, including loss of investor confidence, currency crashes, and social unrest. Avoiding such an outcome will require decisive leadership and sweeping reforms.

Domestic Revenue Mobilization Remains Weak

Nigeria’s narrow tax base remains a major structural weakness. With a tax-to-GDP ratio of just around 6%, the country lags far behind global and regional averages. For comparison, most African countries maintain tax ratios between 15% and 20%.

This limited revenue base restricts the government’s ability to finance development without resorting to borrowing. Experts emphasize the urgent need to broaden the tax net, eliminate leakages, and improve compliance to reduce dependency on debt.

Experts Recommend Policy Overhaul to Avert Disaster

To steer Nigeria away from the brink of fiscal collapse, economists and policy specialists have outlined a series of reforms. Key recommendations include:

• Boosting tax collection efficiency by digitizing revenue systems and reducing exemptions.

• Prioritizing infrastructure spending that generates economic returns rather than unproductive recurrent expenses.

• Improving public financial management to ensure transparency and accountability in how loans are used.

• Reducing reliance on external loans by tapping into domestic capital markets and encouraging private-sector financing.

• Seeking debt restructuring options with international lenders to reduce interest burdens and lengthen repayment periods.

These reforms, if implemented consistently, could gradually restore fiscal balance and promote sustainable economic growth.

Global Trends and Local Realities Collide

Nigeria’s debt troubles are not unique. Several African countries face similar challenges due to global interest rate hikes, commodity price volatility, and reduced foreign investment. However, Nigeria’s large population and economic potential offer a unique opportunity—if properly harnessed.

Unlike some of its peers, Nigeria still has untapped domestic resources and a youthful labor force that could support recovery. But unlocking that potential will require political will, sound economic planning, and a shift from a borrowing-centric development model to one based on productivity and innovation.