Nigeria’s mounting external debt burden casts a long shadow over its economic stability, as evidenced by the $5.47 billion expended on debt servicing between January 2024 and February 2025. This substantial outflow, documented by the Central Bank of Nigeria, represents a significant drain on the nation’s foreign exchange reserves and underscores the precariousness of its fiscal position. The volatile nature of these debt service payments, fluctuating dramatically from month to month, further emphasizes the challenges facing the Nigerian economy. The peak expenditure of $854.37 million in May 2024, followed by a precipitous drop to $50.82 million in June 2024, illustrates the unpredictable nature of these obligations and the difficulty in forecasting and managing the associated financial strain. The fact that over 63% of Nigeria’s international payments within this 14-month period were dedicated to servicing foreign debts paints a stark picture of the country’s financial vulnerability.
A deeper dive into the third quarter of 2024 reveals the intricate dynamics of Nigeria’s debt service burden. Total debt service costs, encompassing both external and domestic obligations, ballooned to N3.57 trillion, a concerning increase driven by the dual forces of rising external debt payments and the depreciation of the naira. The weakening national currency amplified the cost of dollar-denominated debt, pushing the naira equivalent of external debt service from N1.65 trillion in Q2 to N2.14 trillion in Q3, even as dollar-denominated debt service rose by nearly 20%. This highlights the vulnerability of emerging economies to currency fluctuations and the compounding effect on their debt obligations.
The composition of Nigeria’s external debt service payments further illuminates the sources of this financial strain. Multilateral institutions, such as the International Monetary Fund, represent the largest creditors, accounting for over half of the total external debt service. While payments to the IMF remained relatively stable, a dramatic surge in bilateral debt service, primarily due to payments to China’s Exim Bank, added significantly to the overall burden. Furthermore, commercial debt obligations, particularly interest payments on Eurobonds, continued to represent a substantial portion of the external debt service, highlighting the reliance on international capital markets. This complex web of creditors and loan instruments underscores the intricate nature of Nigeria’s debt challenge and the multifaceted approach required to address it.
Looking ahead, the approved 2025 Appropriation Bill allocates a staggering N14.32 trillion for debt servicing, representing a substantial portion of the total budget. This earmarking of significant resources for debt repayment inevitably constrains the government’s ability to invest in critical areas such as public services, infrastructure development, and social programs. This vicious cycle of debt servicing crowding out essential expenditures further hinders economic growth and development, exacerbating the challenges facing the nation. The sheer magnitude of the debt service allocation underscores the urgency of implementing effective debt management strategies and exploring avenues for debt relief.
President Bola Tinubu’s assertion of a reduction in the debt service ratio from 97% to 68% offers a glimmer of hope, but the underlying challenges remain substantial. The commitment to breaking free from the cycle of borrowing and dependence on debt for public spending is crucial for long-term fiscal sustainability. However, achieving this requires a combination of prudent fiscal management, robust economic growth, and diversification of revenue sources. The acknowledgment that servicing debt with a disproportionate share of national revenue is unsustainable highlights the need for a paradigm shift in fiscal policy.
Experts, such as Professor Adeola Adenikinju, President of the Nigerian Economic Society, underscore the unavoidable nature of debt servicing obligations and the potential damage to Nigeria’s international reputation if these commitments are not met. However, the recognition that debt servicing does not contribute directly to economic growth or infrastructural development emphasizes the opportunity cost associated with these payments. The past reliance on debt to fund government operations has created a legacy of obligations that now constrain the nation’s ability to invest in its future. This necessitates a fundamental reassessment of fiscal priorities and a concerted effort to find sustainable solutions to the debt challenge. The imperative now is to transition from a cycle of debt dependence to a path of sustainable economic growth and development.
