Nigeria’s Debt Burden: How Much of the Budget Now Goes to Servicing Loans?

Picture Nigeria’s 2026 budget as a single stack of one hundred naira notes, representing every naira the government expects to spend this year. Before a single classroom is built, before a single vaccine is bought, before a soldier is paid or a road is resurfaced, twenty-three of those notes are already gone, posted straight to bondholders in London and New York, to the World Bank, to China’s Exim Bank, to holders of domestic treasury bills, for money borrowed in years past. What is left, once that stack is thinner by nearly a quarter, is what actually has to run the country.

That is the arithmetic behind Nigeria’s ₦68.32 trillion budget for 2026, the largest in the country’s history. Debt servicing alone accounts for ₦15.81 trillion of it, more than the combined ₦14.97 trillion set aside for defence, infrastructure, education and health, the four sectors the government itself has called its interlinked national priorities.

Nigeria is not in default, and no one serious is predicting one. But the country has arrived at a point where the single largest claim on its own money is a bill for decisions made years ago, and economists across the political spectrum are now asking the same uncomfortable question: how much longer can this continue before it starts to look less like fiscal management and more like fiscal capture?

The number that keeps climbing
Nigeria’s debt-servicing bill has grown almost every year for more than a decade, and the pace has accelerated sharply since 2023. According to the budget-transparency group BudgIT, debt servicing rose from ₦942 billion in 2014 to ₦4.2 trillion in 2021, then to ₦12.6 trillion by 2024, before crossing ₦15 trillion in this year’s budget, a more than sixteenfold increase within roughly a decade.

President Bola Tinubu told an audience at the Africa Forward Summit in Nairobi that Nigeria expects to spend $11.6 billion servicing debt in 2026 alone, sharply up from the $5.21 billion the Central Bank recorded for external debt servicing in 2025, a jump officials attribute to a heavier schedule of Eurobond interest and principal repayments coming due, layered on top of steadily rising domestic borrowing costs.
The debt generating that bill is also still growing, and growing largely at home.

The Debt Management Office’s latest figures put Nigeria’s total public debt at ₦159.35 trillion as of March 2026, up from ₦149.39 trillion a year earlier, a 6.67 per cent rise in naira terms, though the increase looks far steeper in dollars, at 18.22 per cent, since a stronger naira over the period has masked some of the underlying growth. Domestic debt now makes up 54.85 per cent of the total, with the federal government alone owing ₦82.88 trillion in naira-denominated bonds and treasury bills.

Treasury bills grew fastest of any single instrument, expanding by close to 20 per cent in the first three months of 2026 alone, short-term paper that has to be rolled over again and again, at whatever rate the market demands each time.

Some of that shift traces back to a specific 2023 decision: the securitisation of roughly ₦22.7 trillion in “Ways and Means” advances the Central Bank had extended to the federal government over previous years, effectively converting what had been off-books central bank financing into formal, interest-bearing public debt overnight. It is one reason the debt figures jumped so sharply in a single year that the Debt Management Office later had to publicly correct exaggerated claims circulating that Nigeria’s debt had ballooned from ₦21 trillion to ₦142 trillion under the current administration, the real starting figure, the DMO clarified, was closer to ₦87.38 trillion when President Tinubu took office.

Two numbers, two very different stories

Ask the Debt Management Office whether Nigeria’s debt is a problem, and the answer leans on one number. Ask an independent economist, and the answer leans on a different one entirely and the gap between those two numbers is where most of the argument actually lives.

The DMO’s preferred figure is debt-to-GDP: roughly 40 per cent by the office’s own reckoning, a level Director-General Patience Oniha has repeatedly pointed to as comfortably below the 70 per cent threshold typically used as a warning line for emerging economies. Bismarck Rewane, chief executive of Financial Derivatives Company and one of Nigeria’s most closely watched independent economists, has offered a broadly similar projection, estimating debt-to-GDP will reach around 40.6 per cent in 2026 and climb gradually toward 43.5 per cent by 2030, a pace he has described as “not yet uncontrollable but one that leaves little margin for error.”

The number that troubles economists more is debt-service-to-revenue: how much of the government’s actual cash income, as opposed to the size of the entire economy, gets consumed servicing debt already owed. The IMF’s latest assessment projects that interest payments alone will consume 53.7 per cent of federal government revenue in 2026, up from 53.2 per cent in 2025 and just 40.8 per cent as recently as 2024.

Muda Yusuf, chief executive of the Centre for the Promotion of Private Enterprise, has called this the country’s real fiscal vulnerability, distinct from the reassuring debt-to-GDP figure. “Nigeria’s debt-to-GDP ratio may still look manageable on paper,” Yusuf has said, “but debt-service-to-revenue ratio is the real concern. When a very large percentage of government revenue goes into debt servicing, the government loses fiscal flexibility.” Elsewhere, describing the same dynamic, he put it even more starkly: once debt servicing is deducted from revenue, “you have to go out and borrow again. It’s a major structural issue.”

Christian Ebeke, the IMF’s resident representative in Nigeria, has drawn the same distinction from inside the institution most responsible for judging debt sustainability globally. Nigeria’s debt, he has said, benefits from a reasonably balanced mix of domestic and external borrowing and comparatively long repayment maturities, both of which lower the risk of a sudden liquidity crunch. But he has been equally blunt about what the revenue side of the equation means in practice: “When you have more than 50 percent of your tax collection devoted to repaying interest on your federal government debt, it leaves you very little room to actually pay for health, education, cash transfer, including security.”

What the number actually costs

Debt-to-GDP measures whether a country can theoretically afford its debt. Debt-service-to-revenue measures what a government can actually do with the cash it has left over once that debt is paid and that is where the number stops being an abstraction and starts showing up as an empty line in a health ministry’s procurement plan.

Nigeria’s 2026 budget allocates ₦2.48 trillion to health, about 4.2 per cent of total spending and the highest nominal health allocation in the country’s history and still nowhere near the 15 per cent benchmark African governments agreed to under the 2001 Abuja Declaration. Health’s share of the federal budget has hovered below 6 per cent in every year since 2023, regardless of how large the overall budget has grown: 4.9 per cent in 2023, 4.6 per cent in 2024, under 6 per cent again in 2025, 4.2 per cent this year.

Education fares only slightly better, at ₦3.52 trillion. A joint report by ActionAid International and ActionAid Nigeria found that the country now spends nearly five times more of its national revenue servicing debt than on healthcare and education combined and Nigeria’s external debt servicing alone consumed more than 72 per cent of the country’s total international payments in 2025, according to Central Bank data, leaving comparatively little foreign exchange for the imported drugs, equipment and machinery that hospitals, schools and manufacturers all depend on.

Rewane has pointed to a related problem: the widening gap between what citizens are told about their taxes and borrowing fund, and what they can actually see. “When citizens cannot clearly connect borrowing to measurable improvements in their daily lives, skepticism becomes inevitable,” he has said. “People want to see roads, stable electricity, efficient hospitals, rail lines, industrial parks and jobs. Those are visible indicators of debt utilisation.” Rising domestic borrowing carries a second-order cost too, in his telling, as the government competes harder for naira in the local debt market, it pushes up the interest rates available to everyone else, crowding out the private credit that businesses need to expand and hire.

What this has looked like elsewhere

Nigeria is far from alone in wrestling with this exact tension, and its recent history is comparatively mild next to what several African peers have already lived through. By some counts, more than 20 African countries are currently in, or at high risk of, debt distress.
Zambia became the first African country to default on its external debt during the pandemic era, in late 2020, after years in which Chinese lenders in particular had financed a rapid build-up of copper-backed borrowing.

Interest payments there climbed from around 19 per cent of government revenue in 2019 to roughly 27.5 per cent by the time restructuring talks concluded, a ratio still well below where Nigeria’s stands today, even after Zambia’s crisis forced years of austerity, a 2020 default, and a prolonged restructuring under the G20’s Common Framework that only reached a landmark bilateral agreement, extending maturities out to 2043, in March 2024. Ghana’s experience, two years later, was faster but arguably more painful for ordinary citizens: after defaulting in December 2022, Ghana became the fourth African country to restructure its debt under the same framework, but did so through a Domestic Debt Exchange Programme that swapped local bondholders pension funds, savers, insurance companies into longer-dated, lower-value instruments, directly hitting savings that Ghanaian households and institutions had built up over decades.

Nothing in Nigeria’s current numbers points toward an imminent default of that kind; its debt maturity profile is longer, its creditor base more diversified, and its access to markets, for now, intact. But the throughline connecting Lusaka, Accra and Abuja is the same one Yusuf and Ebeke are both describing: a debt-service-to-revenue ratio that climbs for long enough eventually stops being a fiscal statistic and starts dictating what a government can and cannot do for its own citizens, regardless of how the debt-to-GDP figure reads on paper.

The debt story beneath the debt story

The ₦159.35 trillion figure that dominates national debate is a federal number, but it is not the whole picture. Nigeria’s 36 states and the Federal Capital Territory carry their own, separate domestic debt stock, which stood at ₦4.52 trillion as of March 2026, small next to the federal total, but concentrated in a way that reveals just how uneven Nigeria’s fiscal capacity really is. Lagos alone accounts for ₦1.21 trillion of that figure, more than a quarter of all subnational debt combined, with the FCT (₦389.88 billion) and Rivers State (₦362.43 billion) rounding out a top three that together holds 43.27 per cent of everything the states owe. At the other end sit states like Jigawa, whose entire domestic debt stock was just ₦1.60 billion in the same period, not because Jigawa has managed its finances more prudently, analysts note, but because it has so little independent revenue-generating capacity that lenders are far less willing to extend it credit in the first place.

That asymmetry is not necessarily alarming on its own. Lagos also generated ₦1.67 trillion in recurrent revenue in the first half of 2026 alone, roughly 90 per cent of its own half-year target, giving it a debt-servicing capacity that dwarfs almost every other state’s, a diversified tax base built on trade, services and port activity that most of Nigeria’s other 35 states simply do not have access to. External debt tells a similar story of concentration, with Lagos, Kaduna and Edo carrying the largest state-level foreign exposure.

The deeper concern is what happens to the states clustered in the middle and bottom of that ranking: those with neither Lagos’s revenue base nor Jigawa’s near-total absence of borrowing, but with debt-service obligations rising faster than the internally generated revenue needed to meet them. For those states, a federal debt-service-to-revenue crisis and a state-level version of the same problem can arrive on the same balance sheet, at the same time, with far less room to manoeuvre than Abuja has.

Why the gap keeps reopening
Nigeria’s debt problem is, underneath the numbers, a revenue problem. According to BudgIT’s analysis of the 2026 budget, the government expects to raise about ₦34.3 trillion in revenue against ₦58.18 trillion in the originally proposed spending plan, a deficit of ₦23.85 trillion, or roughly 4.28 per cent of GDP, meaning that for every ₦100 the government expects to earn, it plans to borrow roughly ₦70 more just to close the gap. That gap did not open this year. By the third quarter of 2025, actual federal revenue stood at only 61 per cent of what the government had projected for that point in the year, a pattern that also held in 2023, when actual revenue came in roughly 18.9 per cent below the annual budget estimate.

Each missed target compounds the next, when the government collects less than planned, it borrows more than planned to sustain the same level of spending, and each new naira or dollar borrowed adds to next year’s interest bill, which eats further into revenue, which then forces further borrowing.

Fuel subsidy removal and the unification of Nigeria’s exchange rates in 2023, the current administration’s signature reforms were both partly designed to break this cycle, and they have measurably lifted the naira value of oil revenue while cutting a major recurring subsidy cost. Officials point to easing inflation, a steadier currency and rising oil output as evidence the strategy is working, and Yusuf himself has credited exchange-rate stability and slowing inflation as genuine wins from the reform period. What the reforms have not yet done is close the deeper structural gap between what Nigeria spends and what it collects, particularly from non-oil taxation, which remains thin relative to the size of the economy even by the standards of comparable emerging markets.

The argument over who pays to close it

If revenue is the real constraint, Nigeria’s options narrow quickly: collect more, spend less, or keep borrowing and hope growth outpaces the debt. The government’s chosen path leans heavily on tax reform. A new tax law took effect this year aimed at widening the non-oil revenue base, consolidating multiple overlapping levies, tightening exemptions, and giving the newly reconstituted Nigeria Revenue Service stronger enforcement powers than its predecessor agency had. Even government-aligned economists concede its effects are unlikely to show up meaningfully in collections before 2027, once the new systems, staffing and enforcement infrastructure catch up with the rules now on paper.

Tax reform of this kind rarely moves quickly anywhere; Nigeria’s own history includes previous VAT and tax-administration reforms that took years to translate into measurably higher collections, a lag that matters enormously when the debt-service bill is compounding every year in the meantime.

The IMF has also recommended Nigeria eventually raise its value-added tax rate from 7.5 to 15 per cent, alongside higher excise duties on tobacco and alcohol. ActionAid has criticised the recommendation as regressive, since consumption taxes extract a proportionally larger share from low-income households than from wealthier ones, absent any parallel increase in taxes on high earners or corporate profits, a criticism sharp enough that the organisation has described the Fund’s continuing influence over Nigeria’s fiscal choices as evidence it operates less like a neutral technical advisor and more like, in the group’s words, “the world’s debt collector and lender of last resort.”

The IMF would dispute that framing entirely, and would point out that many of the countries it has advised on VAT increases have paired them with targeted cash transfers to cushion the poorest households, a design choice Nigeria has only partially adopted through its own social investment programmes, which have themselves faced criticism over patchy coverage and delayed disbursement. What both sides agree on is that Nigeria needs more revenue. What they disagree on is who should be asked to supply it, at a moment when many of the households already absorbing high food and fuel prices would also absorb a heavier VAT bill.

What the stack looks like from here

Reserves are rising. Inflation is easing from its recent peak. Oil production has recovered. These are genuine improvements, and officials are right to note them. None of it changes the shape of the stack of naira notes at the centre of this story: roughly twenty-three out of every hundred, before anything else is decided, already spoken for. Nigeria has not crossed the line that forced Zambia into default or Ghana into a domestic debt exchange, and its own debt managers can make a reasonable case that it will not. Its debt maturity profile is longer than either country’s was at the point of crisis, its lender base more diversified, and unlike Zambia at the point of default, it has not lost access to international capital markets, having returned to Eurobond issuance in recent years at yields the market still considers investable rather than distressed.

But the ratio that most worries the people who study it closely is not debt-to-GDP, but debt-service-to-revenue is not projected to meaningfully improve for years, even by the IMF’s own numbers, and the subnational picture suggests the pressure is not evenly distributed even within the federation. Whatever Nigeria builds with the other seventy-seven naira in that stack, the twenty-three that leave first are no longer a footnote in the budget. They are close to its largest single line, and the country’s own economists, its own debt office, and the IMF itself are now all, in their own separate ways, asking the same question, how long can a government keep governing on what’s left over.