Nigeria could spend nearly three-quarters of its Federal Government revenue servicing debt by 2030, raising concerns about the funds available for infrastructure, healthcare, education and other public services.
The Debt Management Office projects that debt service will consume 71.7 per cent of Federal Government revenue by 2030 under its baseline scenario, significantly exceeding its recommended threshold of 50 per cent.
The projection, contained in the agency’s 2024 Debt Sustainability Analysis report released on Monday, highlights the growing fiscal pressure associated with servicing Nigeria’s debt, even as the country’s debt-to-GDP ratio is expected to decline.
The development points to a fiscal challenge in which the government could improve its debt position relative to the size of the economy while struggling to generate sufficient revenue to meet its obligations.
The DMO’s projections show that the debt service-to-revenue ratio will decline from 60.6 per cent in 2024 to 44.9 per cent in 2025 before rising above the recommended threshold in 2026.
The ratio is expected to climb to 51 per cent in 2026 and 57.1 per cent in 2027, before reaching 57.4 per cent in 2028 and 67.3 per cent in 2029.
By 2030, debt servicing is projected to consume 71.7 per cent of Federal Government revenue.
The implications extend beyond debt management, as a rising share of revenue committed to interest and other debt obligations could leave the government with fewer resources to finance public services and capital projects.
The pressure could also constrain the government’s ability to respond to economic shocks without resorting to additional borrowing.
The DMO projects that Nigeria’s public debt-to-GDP ratio will decline from 53.7 per cent in 2024 to 27.3 per cent by 2030 under the baseline scenario.
However, the projected improvement in the debt-to-GDP ratio does not necessarily translate into greater fiscal flexibility.
The debt service-to-revenue ratio measures the government’s capacity to meet debt obligations from its income, while debt-to-GDP compares the debt stock with the size of the economy.
For Nigeria, the distinction is particularly important because government revenue remains relatively weak compared with the size of its economic activities.
A country can therefore have a declining debt-to-GDP ratio while facing difficulties servicing its obligations if revenue growth fails to keep pace with debt payments.
Under the DMO’s shock scenario, the debt service-to-revenue ratio is projected to rise to 97.3 per cent by 2030, suggesting that almost all Federal Government revenue could be absorbed by debt servicing under adverse economic conditions.
The scenario assumes a 30 per cent exchange rate depreciation, a two per cent decline in real GDP and a 2.5 per cent reduction in revenue.
The debt-to-GDP ratio under this scenario is projected at 34.6 per cent by 2030.
The DMO identified weak revenue mobilisation, exchange rate depreciation and global economic uncertainties as major threats to Nigeria’s debt sustainability.
The agency also highlighted elevated financing, refinancing and foreign exchange risks.
Nigeria’s average Eurobond spread stood at 975.58 basis points between 2 October and 31 December, 2024, above the DMO’s 600-basis-point threshold.
The report also showed that the annual change in the share of short-term debt in total public debt stood at 1.8 per cent, exceeding the 1 per cent threshold.
The DMO attributed the increase partly to greater Nigerian Treasury bills issuance, which could expose the government to refinancing pressures as short-term obligations mature.
Nigeria spent $1.82bn servicing external debt in the first half of 2026, while domestic debt servicing amounted to N5.28tn during the same period.
To address the projected risks, the DMO recommended sustained revenue reforms, including improved tax compliance, expansion of the tax base, technology adoption and more efficient public expenditure.
The agency also called for maintaining a unified and flexible exchange rate regime and sustaining the removal of the petrol subsidy.
Source: punchng.com
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