Nigeria’s Debt Spiral: Borrowing for Survival, Paying for Growth
Nigeria’s public debt has crossed N159.35 trillion, about $110.97 billion as of March 2026. On paper that is 32.3% of GDP, which looks safe compared to the global 60% danger mark. But the real pressure is not the size of the debt, it is what it costs to service it. This is the interpretative truth behind the numbers: Nigeria is borrowing faster to pay for yesterday’s borrowing, and the economy is paying the price today.
The structure of the debt has flipped in the last two years. Domestic debt now stands at N84.85 trillion, or 53.27% of the total, while external debt is $51.90 billion. The Debt Management Office is deliberately pushing for an 80:20 domestic-to-external ratio to cut FX risk. In the first half of 2026 alone, the federal government raised N7.6 trillion from T-Bills and FGN Bonds, and T-Bill issuances jumped 59.8% year-on-year to N12.75 trillion. But domestic borrowing is not free money. When government competes for funds at 20%+ risk-free rates, banks prefer to lend to FG instead of to manufacturers and SMEs. That crowding out is part of why capital spending fell from 1.3% of GDP in 2024 to 1.0% in 2025. On the external side, the exposure is still concentrated. Multilaterals hold $23.86 billion, with World Bank IDA alone accounting for $18.39 billion. Eurobonds make up $18.23 billion. China remains the largest bilateral creditor at $4.95 billion plus $507 million. The Senate’s recent approval of a new $6 billion facility, including a $1 billion UK loan for Lagos and Tin Can ports, shows we are still going abroad for infrastructure. The catch is that it is collateralized by Naira FGN securities at 133.3%. In effect, we are pledging local assets to get dollars.
The critical problem is not debt-to-GDP, it is debt-service-to-revenue. The World Bank’s April 2026 Nigeria Development Update put it plainly: the debt ratio looks moderate but the servicing is suffocating. For 2026, the federal government budgeted N15.91 trillion for debt service, N10.16 trillion domestic and N5.36 trillion foreign. That is over a quarter of the entire budget. In 2025, debt service took 49.5% of revenue. Almost 50 kobo of every naira earned went to paying old loans instead of schools, hospitals, or roads. The World Bank calls this a “fiscal squeeze” and notes that capital investment has become the “primary adjustment margin.” In simple terms, when money is tight, projects get cut first. Debt service does not.
This is showing up across the economy in four ways. First, there is less money for development. With recurrent spending and debt service absorbing most revenue, capital expenditure is shrinking. That means the very infrastructure these new loans are meant to fix, like ports and power, is being starved by the cost of past loans. Second, the cost of capital has gone up. Government’s aggressive domestic borrowing pushed T-Bill rates higher, and that sets the floor for lending. Private businesses now borrow at 30%+. Manufacturing and agriculture cannot compete at those rates, so job creation is slow. Third, there is continued pressure on FX and inflation. We still need $5.36 trillion equivalent in 2026 to service external debt. That is dollar demand the CBN must meet. It weakens the naira and feeds imported inflation, even as we borrow locally to avoid FX exposure. Fourth, we are now borrowing to borrow. FG plans to borrow N29.20 trillion in 2026, revised up from N17.89 trillion. In Q1 alone it already borrowed N8.1 trillion domestically, plus the new $6 billion external approval. At this pace we will exceed the annual target. Debt stock was N153.29 trillion at the end of Q3 2025. It is growing by almost N10 trillion yearly.
That raises hard questions about what the borrowing is actually funding. The $1 billion port rehab loan has a clear asset attached. But most domestic borrowing is funding recurrent expenditure and debt rollover, not new productive assets. That is not sustainable. The strategy of shifting to domestic debt has reduced FX risk but increased interest rate risk. Instruments like Ways and Means, promissory notes at N1.39 trillion, and savings bonds are short-term fixes with long-term costs. Ultimately, citizens pay through fewer projects, higher taxes, and inflation. The 2026 budget assumes revenue of N68.32 trillion against expenditure of N36.87 trillion. The gap is debt.
Nigeria is not insolvent, but it is illiquid and over-leveraged on servicing. Debt is no longer just a finance ministry problem. It is now the single biggest constraint on growth. Until debt service drops below 30% of revenue, every new loan, whether for infrastructure or recurrent needs, will feel like borrowing to stay afloat rather than to sail forward. The critical test for the Tinubu administration and the new Head of Service, Abel Enitan, will be whether spending can be restructured so that borrowing builds assets that earn more than the interest we pay. If not, N159 trillion today will be N200 trillion tomorrow, and the economy will keep paying interest instead of dividends.
