The shocking revelation that Nigeria, the self-acclaimed giant of Africa and one of its largest economies, is teetering on the edge of a fiscal cliff, is certainly no complimentary news to the administration of President Ahmed Tinubu. Speaking Tuesday at the monthly National Economic Council (NEC) meeting at the State House, Abuja, with Vice-President Kashim Shettima presiding, the chairman of the Bill Gates Foundation, Bill Gates, disclosed that for the first time in 23 years, Nigeria’s debt-to-GDP ratio has exceeded 50%, signaling a troubling trend that threatens to destabilize the nation’s economic foundation and mortgage the future of its citizens. Nigeria’s debt has ballooned to unprecedented levels, with the total public debt estimated at ₦87 trillion (approximately $113 billion) as of mid-2023. According to the Debt Management Office (DMO), the country’s debt-to-GDP ratio has surpassed 50% for the first time in over two decades, up from 29% in 2019. This steep rise in debt underscores the urgent need for a re-evaluation of government policies, and a wholesale reform of Nigeria’s fiscal governance. The gravity of the situation demands a decisive and immediate response, not empty platitudes from Tinubu and his spin doctors.
The situation has been compounded by recent economic policies of the current administration that have further pauperized the people. President Tinubu needs to sit up and confront this challenge with resolute decisiveness to secure the future of Nigeria. This drastic rise in debt has been fueled by several factors: external borrowing to fund infrastructure, dwindling oil revenues, excessive domestic borrowing, and the economic fallout from global shocks such as the Covid-19 pandemic and the Russia-Ukraine conflict. The external debt component, now accounting for about 40% of the total public debt, reflects Nigeria’s increasing dependence on international loans. The country has borrowed heavily from multilateral institutions like the World Bank, IMF, and African Development Bank (AfDB), as well as from private markets through Eurobonds. Meanwhile, domestic debt, which comprises government securities and other instruments, has also risen sharply as the federal government continues to tap into local financial markets to finance budget deficits.
But while borrowing in itself is not inherently problematic, Nigeria’s unsustainable debt trajectory is exacerbated by several alarming factors: the country’s revenue-to-debt ratio, the opaque nature of its fiscal governance, the inability to diversify its revenue streams, and most disturbingly, the high cost of debt servicing. In 2022 alone, Nigeria spent ₦5.2 trillion (around $13 billion) on debt servicing, amounting to over 96% of its total revenue. Simply put, for every ₦100 Nigeria earns, ₦96 is spent on repaying loans, leaving little to address the nation’s pressing needs such as healthcare, education, and infrastructure. Nigeria’s current debt crisis is the result of years of mismanagement, economic missteps, and overreliance on a volatile oil market. Successive administrations have failed to address the root causes of the country’s fiscal challenges, opting instead for short-term fixes and pig-headed policies that have only compounded the nation’s woes.
Oil has long been the lifeblood of the Nigerian economy, contributing over 90% of export earnings and 60% of government revenues. However, the global oil market is notoriously volatile, and Nigeria’s failure to diversify its revenue base has left it vulnerable to external shocks. The collapse of oil prices in 2014 dealt a severe blow to the economy, triggering a recession from which the country has struggled to fully recover. The inability to stabilize oil revenues has forced the government to turn to borrowing to plug budget gaps and finance essential projects. Nigeria’s tax-to-GDP ratio, which hovers around 6%, is among the lowest in the world. This reflects the country’s weak tax administration and widespread evasion, particularly by wealthy elites and large corporations. Moreover, the informal sector, which constitutes a significant portion of the economy, remains largely untaxed. The government has introduced various measures to boost revenue, such as the introduction of a value-added tax (VAT) and excise duties, but these efforts have been insufficient to meet growing expenditure demands.
While borrowing can be justified if used to fund productive investments that generate returns, Nigeria’s borrowing spree has been marked by inefficiency and lack of accountability. Infrastructure projects funded by loans have been plagued by delays, cost overruns, and corruption, diminishing their potential to contribute to economic growth. Meanwhile, recurrent spending on wages, subsidies, and social programs has further strained the budget, leaving little room for investment in critical sectors.
Nigeria’s debt servicing costs have become crippling. With over 96% of revenues now devoted to repaying loans, the government is effectively trapped in a cycle of borrowing to pay off existing debt. This high debt burden leaves the government with little fiscal space to implement needed reforms or invest in social services. Moreover, Nigeria’s borrowing terms have become increasingly unfavorable, with high interest rates on Eurobonds and loans from private creditors compounding the problem.
The implications of Nigeria’s growing debt crisis are far-reaching and dire. Without urgent action, the country risks slipping into a full-blown economic collapse that could take decades to recover from. The high cost of debt servicing has severely constrained the government’s ability to invest in critical infrastructure, education, healthcare, and other sectors essential for economic growth. As a result, Nigeria’s economic growth rate remains sluggish, far below the levels needed to reduce poverty and create jobs for the country’s rapidly growing population. The World Bank has warned that Nigeria’s economic growth will continue to underperform if the debt burden is not addressed.
Nigeria is already home to the world’s largest population of people living in extreme poverty, with over 90 million Nigerians living on less than $1.90 a day. Today, Nigeria remains home to the highest number of stunted children in Africa and ranks third globally – with more than 10 million of such children. Nigeria is also one of the six countries that account for half of all child deaths worldwide, with one million children under five years dying annually. To break it down, every hour, 100 children under five years die of malnutrition in Nigeria, according to the UN Children’s Fund (UNICEF). The debt crisis threatens to exacerbate this problem, as the government’s limited fiscal space makes it difficult to implement social safety nets or create employment opportunities. Rising inflation, a devalued naira, and high food prices have already pushed millions into poverty, and the situation could worsen if the debt crisis is not resolved.
Nigeria’s growing debt burden has spooked both domestic and international investors, who are wary of the country’s ability to meet its financial obligations. This has led to capital flight, a sharp decline in foreign direct investment, and a deterioration of the naira. The country’s credit rating has also been downgraded by international rating agencies, making it more expensive for Nigeria to borrow from global markets. As Nigeria becomes more reliant on external borrowing, it risks ceding control over key economic decisions to its creditors. Already, the country has had to accept conditions from multilateral lenders like the IMF and World Bank, including subsidy reforms and currency devaluation. If Nigeria defaults on its debt, it could be forced into a structural adjustment program that would impose harsh austerity measures on the population, further deepening economic hardship.
Nigeria’s debt crisis is not insurmountable, but it requires bold and immediate action. The federal government must take decisive steps to reverse the trend of unsustainable borrowing and put the country on a path to fiscal stability. The Nigerian government must accelerate efforts to diversify the country’s revenue base beyond oil. This includes broadening the tax net, particularly in the informal sector, and strengthening tax administration to improve compliance. Efforts to boost non-oil exports, particularly in agriculture, manufacturing, and services, should be prioritized. Nigeria’s bloated public sector, with its high wage bill and recurrent spending, must be reined in. The government should focus on cutting unnecessary expenditures, eliminating fuel subsidies, and reducing the cost of governance. Investments should be channeled towards productive sectors that can stimulate economic growth and generate returns.
The government must improve transparency and accountability in the management of public debt. All borrowing should be linked to clearly defined projects with measurable outcomes, and the terms of loans should be made public. The National Assembly should play a more active role in scrutinizing borrowing plans and ensuring that they align with the country’s development goals. While addressing the debt crisis, Nigeria must continue to invest in critical infrastructure, education, and healthcare. These are the pillars of long-term economic growth and will help the country create jobs, reduce poverty, and improve the standard of living for all Nigerians. Given the scale of Nigeria’s debt burden, the government should engage with its creditors to explore options for debt relief or restructuring. This could include renegotiating the terms of loans, extending repayment periods, or seeking concessional financing from multilateral institutions.
Nigeria’s debt crisis is a ticking time bomb that threatens to derail the country’s development and impoverish future generations. The government must act now to avert disaster, and citizens must demand accountability from their leaders. The road to recovery will not be easy, but with the right reforms, Nigeria can overcome this challenge and build a more prosperous and sustainable future for all its citizens. The time for action is now.
