There is a question Nigerians ought to be asking with increasing urgency: How much more debt can a country accumulate when it has not sufficiently expanded its capacity to generate the revenue required to repay what it owes?
Nigeria’s growing appetite for borrowing deserves serious national attention. Beyond the impressive figures routinely presented in economic reports, beyond the argument that the country’s debt-to-GDP ratio remains within internationally acceptable limits, and beyond government assurances that the economy is on a path to recovery, there is a fundamental fiscal problem that cannot be ignored: Nigeria is struggling with the cost of servicing its existing debt, yet continues to seek additional loans.
The danger is not necessarily that Nigeria will default tomorrow. The more immediate danger is that the country could gradually mortgage its fiscal future, leaving successive administrations with increasingly limited resources to govern, invest, provide social services and respond to economic emergencies.
Borrowing is not inherently bad. Developed economies borrow. Developing economies borrow. Even countries with strong economies issue bonds and access international credit markets. But responsible borrowing must have a clear economic justification. It must finance investments capable of expanding productivity, generating employment, increasing exports, improving government revenue and ultimately strengthening the capacity to repay. The critical question for Nigeria is whether the scale and composition of its borrowing are producing sufficient economic returns.
The dangerous comfort of the debt-to-GDP ratio
One of the most frequently deployed arguments in defence of Nigeria’s borrowing is that the country’s debt-to-GDP ratio remains relatively moderate compared with that of several other countries. On the surface, this sounds reassuring. However, it risks confusing two different economic realities: the size of an economy and the financial capacity of its government to meet its obligations. GDP measures the value of economic output. Government revenue, on the other hand, represents the money actually available to the government to finance its responsibilities and service its debt.
A country can have a relatively large GDP and still have a weak revenue-generating government. This is particularly relevant to Nigeria, where the capacity to collect taxes and generate public revenue remains relatively low compared with the size of the economy. Consequently, a debt stock that appears manageable when measured against GDP can become extremely burdensome when measured against actual government revenue.
This is why the debt-to-revenue ratio deserves at least as much attention as the debt-to-GDP ratio. According to the World Bank’s October 2025 Nigeria Development Update, Nigeria’s debt-service-to-revenue ratio was approximately 42 per cent in 2025. The report identified the high cost of servicing debt relative to government revenue as the country’s principal debt vulnerability.
In other words, the problem is not simply how much Nigeria owes, it is how much of the money Nigeria earns must be surrendered to creditors before the government can attend to its other obligations. The International Monetary Fund’s June 2026 assessment presents another troubling dimension. Interest payments alone were estimated at 53.2 per cent of Federal Government revenue in 2025, with a projection of 53.7 per cent for 2026.
These are different indicators. The World Bank’s debt-service measure and the IMF’s interest-payment measure should not be confused. But both point to the same underlying problem: debt is consuming a substantial share of the government’s financial resources. When more than half of federal revenue is absorbed by interest payments, what remains for education, healthcare, infrastructure, security, housing, agriculture and other development priorities? This is the fiscal squeeze Nigeria must confront.
Borrowing in foreign currencies: The exchange-rate danger
There is another dimension of Nigeria’s debt problem that deserves particular attention: the danger of excessive dependence on foreign-currency borrowing. Foreign loans may appear attractive because international lenders can offer large financing packages, sometimes with longer repayment periods and relatively favourable interest rates. However, these loans introduce a risk that domestic borrowing does not carry to the same extent: exchange-rate exposure.
Nigeria earns most of its domestic government revenue in naira, but foreign-currency loans must be repaid in dollars, euros or other foreign currencies. This creates a dangerous mismatch.
Suppose Nigeria borrows $1 billion when the exchange rate is N800 to the dollar. The naira equivalent of that debt is N800 billion. If the naira subsequently depreciates to N1,500 to the dollar, the same principal becomes N1.5 trillion in naira terms, even before interest and other charges are considered. The country has not borrowed another dollar, but its domestic-currency debt burden has increased dramatically. This is the danger of exchange-rate depreciation to a country whose revenue is predominantly denominated in local currency.
Foreign borrowing also exposes Nigeria to changes in international interest rates, global financial conditions, creditor requirements and refinancing risks. Commercial foreign loans, particularly those with relatively high interest rates or shorter maturities, can become especially expensive. There is also the question of opportunity cost. Dollars used to service foreign debt are dollars that cannot be used for importing essential machinery, medicines, industrial equipment and other productive inputs.
A country that does not sufficiently earn foreign exchange through exports and productive economic activities may eventually find itself borrowing new dollars to repay old dollar obligations. That is a cycle of financial vulnerability no responsible government should encourage.
The illusion of growth: When consumption outruns production
Perhaps one of the most important issues in understanding Nigeria’s economic future is the distinction between economic growth and productive economic transformation. Nigeria’s GDP can grow without the country necessarily building the industrial capacity required to sustain prosperity.
GDP is not fictitious simply because consumption contributes significantly to it. Consumption is a legitimate component of economic activity, and services can be highly productive. However, an economy whose growth is not accompanied by sufficient expansion in domestic production, industrial capacity, export earnings and productivity may struggle to sustain that growth and generate the foreign exchange needed to meet external obligations
Consider the Nigerian economy. We remain heavily dependent on imports for machinery, industrial inputs, pharmaceuticals, refined petroleum products and several other essential goods. Our manufacturing sector faces persistent challenges involving electricity, infrastructure, access to finance, foreign exchange and production costs.
The implication is that a significant proportion of the money circulating in the economy eventually creates demand for goods and services produced elsewhere. When consumption rises faster than domestic productive capacity, imports can rise, foreign-exchange pressures can intensify, and the economy becomes more vulnerable to external shocks.
The World Bank’s October 2025 Nigeria Development Update highlighted the need for stronger productivity, investment and competitiveness to translate macroeconomic reforms into improved living standards. Its analysis of Nigeria’s rebased GDP also illustrates the structural challenge. For 2024, agriculture accounted for approximately 27.2 per cent of GDP, industry 16.3 per cent, including manufacturing at 8.1 per cent and crude oil at 2.2 per cent, while services accounted for 54.4 per cent.
These figures do not suggest that services are unimportant. Rather, they raise an important question about the structure of our economy and the extent to which economic activity is translating into export competitiveness, industrial jobs and sustainable government revenue. A country cannot indefinitely rely on borrowing to finance consumption, imports and recurrent obligations without strengthening the productive sectors that generate the resources required to repay those loans. The real measure of economic progress should not merely be how much an economy grows, but how much wealth it produces, how many jobs it creates, how much it exports and how much sustainable revenue it generates.
The World Bank loans under Tinubu: What exactly are we financing? The volume of World Bank financing approved for Nigeria under President Bola Tinubu’s administration also deserves closer public scrutiny. According to an analysis published by The Punch in July 2026, the World Bank approved approximately $11.4 billion in financing for Nigeria between June 2023 and June 2026.
This represents about 78 per cent of the $14.59 billion approved during the entire eight-year administration of former President Muhammadu Buhari. The figure is significant, especially when viewed against Nigeria’s existing debt-service obligations. It is important to distinguish loan approvals from actual disbursements. The same analysis reported that approximately $2.32 billion of the $11.4 billion approved under Tinubu had been disbursed as of the latest World Bank database update examined by the newspaper. Approval does not mean that the entire amount has already been received or spent.
Nevertheless, the scale of the commitments raises questions about priorities, implementation and measurable returns. Consider some of the major World Bank financing arrangements. In June 2024, the World Bank approved a $2.25 billion package comprising $1.5 billion for Nigeria’s economic stabilisation and transformation reforms and $750 million for resource mobilisation reforms.
In September 2024, another $1.57 billion was approved for three programmes: $500 million for the Human Capital Opportunities for Prosperity and Equity Governance programme (HOPE-GOV). $570 million for the Primary Healthcare Provision Strengthening Programme (HOPE-PHC). $500 million for the Sustainable Power and Irrigation for Nigeria Project (SPIN).
There are also programmes such as the Adolescent Girls Initiative for Learning and Empowerment and the Nigeria for Women Programme Scale-Up. These are not necessarily meaningless projects. Healthcare, education, irrigation, electricity and women’s economic empowerment are legitimate development priorities. Some have identifiable beneficiaries and measurable objectives.
The concern, however, is whether the government is demonstrating sufficiently clear, publicly accessible evidence of implementation, measurable results, independent evaluation and long-term financial returns commensurate with the debt commitments.
For example, when a government borrows hundreds of millions of dollars for human capital development, Nigerians should be able to identify the number of schools improved, the number of healthcare facilities strengthened, the quality of services delivered and the measurable improvement in educational and health outcomes.
When hundreds of millions are borrowed for power and irrigation, the public should know the specific infrastructure delivered, the additional electricity generated, the hectares of land brought under irrigation and the economic value created. When loans are tied to broad policy objectives such as economic stabilisation, revenue mobilisation, governance improvement and social protection, the government must explain precisely what has changed as a result of the financing and how those changes will generate lasting economic benefits.
The issue is not that these objectives are inherently vague or unnecessary. The issue is that broad policy objectives must not become substitutes for transparent accounting and measurable development outcomes. Nigeria cannot afford to borrow billions of dollars and leave citizens struggling to establish what tangible economic value the country has received in return.
There is an additional concern with policy-based financing: some loans support reforms and budgetary programmes rather than directly financing a revenue-generating physical asset. Such financing may be justified, but it requires particularly strong evidence that the reforms will improve fiscal capacity and deliver lasting public benefits. The ultimate test is simple: will these loans leave Nigeria with a stronger economy capable of repaying them, or will they simply increase the country’s future obligations?
The lessons from countries that borrowed beyond their capacity
Nigeria is certainly not the first country to face the consequences of excessive borrowing, weak revenue mobilisation and poor debt management. The experiences of Sri Lanka, Ghana and Zambia provide important lessons.
In April 2022, Sri Lanka defaulted on its external debt obligations for the first time in its history. The crisis did not happen overnight. Years of fiscal deficits, a narrow revenue base, heavy reliance on external borrowing and weaknesses in economic management had left the country vulnerable. The COVID-19 pandemic devastated tourism receipts, while falling foreign-exchange earnings and rising import costs intensified the country’s difficulties.
Sri Lanka eventually experienced severe shortages of essential goods, fuel and medicines, inflation and widespread public protests. It had to seek IMF assistance and negotiate debt restructuring with its creditors. The lesson for Nigeria is that foreign borrowing becomes particularly dangerous when a country lacks sufficient foreign-exchange reserves and a diversified export base to withstand external shocks.
Ghana offers an even more relevant African example. For years, Ghana accessed international capital markets, accumulated public debt and struggled with fiscal deficits. The COVID-19 pandemic and the global economic shocks that followed further weakened its finances. By December 2022, the Ghanaian government announced a suspension of payments on certain external debts and embarked on a major debt restructuring programme.
According to IMF assessments, Ghana’s debt-service-to-revenue ratio reached approximately 127 per cent in 2020. This meant that its debt-service obligations were equivalent to more than the government’s revenue for that year, although the indicator includes debt-service components and must be understood in its fiscal context. The consequences were severe. Ghana restructured domestic debt, negotiated with external creditors and entered an IMF-supported programme. The experience demonstrates that a country can reach a point where its government revenue is insufficient to comfortably meet debt obligations and finance essential public expenditure.
Zambia’s experience is another important warning. The country embarked on an ambitious public investment programme, financed substantially through external borrowing, including non-concessional loans. However, according to the IMF, the resulting investments did not produce sufficient economic growth and government revenue to sustain the rising debt burden.
By the end of 2019, Zambia’s public and publicly guaranteed debt had risen to approximately 105 per cent of GDP, according to the IMF’s subsequent assessment. In November 2020, Zambia defaulted on its Eurobond obligations, becoming the first African country to default during the COVID-19 crisis. The country subsequently entered a prolonged debt restructuring process.
Borrowing for infrastructure is not automatically productive borrowing. Roads, bridges, power projects and other infrastructure must be properly selected, economically viable, efficiently executed and capable of generating benefits that justify their cost. A country can borrow billions to build infrastructure and still end up in financial distress if the investments fail to produce sufficient economic returns.
These examples are not predictions of Nigeria’s inevitable future. They demonstrate the risks that arise when debt accumulation, weak fiscal capacity, foreign-exchange vulnerability and poor investment returns combine.
The danger of borrowing to repay borrowing
One of the most disturbing developments in debt management is the possibility of entering a cycle in which new loans are contracted to meet obligations arising from previous loans. Borrowing to refinance maturing debt is not automatically irresponsible. Governments routinely refinance debt to manage maturities and reduce financing costs.
However, when refinancing becomes a permanent substitute for revenue generation, economic productivity and fiscal discipline, the country becomes increasingly exposed to creditor confidence and international financial conditions. The danger is that a government may find itself borrowing not to build new economic capacity, but simply to remain financially afloat. This is particularly worrying for Nigeria because of its enormous development needs.
We have millions of children who require quality education, hospitals that need modern equipment, roads that require rehabilitation, farmers who need irrigation and processing facilities, and industries that need reliable electricity. Every naira committed to debt servicing is a naira that cannot simultaneously be spent on these priorities. The opportunity cost is enormous. What happens when the creditors begin to dictate the pace?
There is also a political and economic dimension to foreign indebtedness that Nigerians must understand. When a country becomes heavily dependent on external financing, its economic policy choices can become increasingly constrained by the conditions attached to financing and the need to maintain creditor confidence.
This does not mean every World Bank or IMF loan automatically comes with harmful conditions. Different facilities have different terms, and some are designed to support reforms that governments have independently chosen. However, policy-based loans can involve agreed reform commitments, performance conditions and institutional changes. Nigeria’s own experience with subsidy removal and exchange-rate liberalisation has demonstrated how major economic policy decisions can have far-reaching social consequences.
The government must therefore be transparent about the conditions attached to loans, the obligations being undertaken and the long-term implications for the Nigerian economy. Financial independence is not simply about having a sovereign flag and an elected government. It also requires sufficient fiscal and economic capacity to make policy choices without being trapped by an unsustainable debt burden.
What Nigeria must do before the problem becomes bigger
The solution is not to stop borrowing altogether. That would be an unrealistic and potentially counterproductive position for a developing country with substantial infrastructure and human development needs. The solution is to borrow more intelligently, spend more transparently and build a stronger productive economy.
Firstly, every major loan should be accompanied by a publicly accessible economic justification, a clear implementation timetable and measurable performance indicators.
Secondly, the government must prioritise investments that expand domestic production, particularly in manufacturing, agriculture, energy, mineral processing and export-oriented industries.
Thirdly, Nigeria must strengthen its non-oil revenue base. A country with an economy of Nigeria’s size should not continue to depend so heavily on a relatively narrow pool of government revenue.
Fourthly, foreign-currency borrowing must be carefully managed against the country’s capacity to earn foreign exchange. Loans should be structured with due consideration for exchange-rate risks, repayment schedules and the economic returns of the projects being financed. Fifth, there must be stronger legislative oversight and independent auditing of loan utilisation. Nigerians deserve to know how much has been borrowed, how much has been disbursed, what has been delivered and what remains outstanding.
Finally, government must distinguish between borrowing for productive investment and borrowing to finance recurrent expenditure or temporary fiscal relief. The latter may sometimes be necessary, but it cannot become a permanent development strategy.
Saheed Fuhad is a Broadcast Journalist. Public Affairs Analyst. He is currently the Head of Station at Mainland 98.3fm. He writes from Lagos.
