Nigeria’s growing public debt: A cause for concern?

In December 2024, Nigeria’s public debt soared to an eye-watering N144.67 trillion, marking a staggering increase of 48.58 percent from N97.34 trillion just a year earlier. This dramatic surge, which represents an addition of N47.32 trillion, paints a concerning picture of the country’s fiscal health. The latest report from the Debt Management Office (DMO) offers a clear snapshot of this troubling trajectory, which is showing no signs of slowing down.

On a quarterly basis, the country’s debt has grown by 1.65 percent, climbing from N142.32 trillion in September 2024. This continued upward trend signals that debt accumulation has become a regular feature of Nigeria’s economic landscape, with no immediate end in sight. While the figures are undoubtedly alarming, they are not entirely surprising given the nation’s reliance on both domestic and external borrowing to finance its ambitious development plans.

Breaking down the numbers, the report reveals that the rise in public debt is largely driven by a significant increase in external borrowing, which has surged by 83.89 percent year-on-year. External debt alone stood at N70.29 trillion as of December 2024, a massive jump from N38.22 trillion at the end of 2023.

This spike has been primarily fuelled by the federal government’s increasing reliance on foreign loans to meet its funding needs. The federal government accounted for a hefty N62.92 trillion ($40.98 billion) of the external debt, while the states and the Federal Capital Territory (FCT) collectively owed N7.37 trillion ($4.80 billion).

On the domestic front, debt has also risen sharply, though at a more modest pace of 25.77 percent. By December 2024, domestic debt stood at N74.38 trillion, up from N59.12 trillion the previous year. The federal government’s share of this domestic debt is even larger at N70.41 trillion ($45.86 billion), while the states and FCT owed a comparatively smaller N3.97 trillion ($2.58 billion).

This mounting debt burden has raised serious concerns among financial experts, particularly when set against the backdrop of Nigeria’s ongoing infrastructure challenges. Dr. Muda Yusuf, the Chief Executive Officer of the Centre for Promotion of Private Enterprises, has voiced his apprehension over the rapidly expanding debt, noting that much of the borrowed funds are being used to cover shortfalls in infrastructure development rather than productive investments that could yield long-term economic returns.

Indeed, this raises an important question: Is Nigeria borrowing wisely? The sharp increase in external debt, which often comes with higher interest rates and foreign exchange risks, places additional pressure on an already overburdened economy. At the same time, while domestic debt is more manageable in terms of currency risk, the sheer size of the debt load could crowd out private sector investment, as more resources are allocated to servicing government debt rather than stimulating economic growth through business activity.

While the government may argue that borrowing is essential for financing crucial infrastructure projects, such as roads, power, and housing, the rising debt burden threatens to undermine Nigeria’s economic stability. There is an urgent need for greater transparency in how these funds are being spent and a clear strategy for repaying the mounting liabilities. Without this, the country risks falling into a debt trap where servicing debt takes up an increasing proportion of government revenues, leaving less room for public investment in critical areas such as education, healthcare, and social services.

The growing public debt also highlights the broader issue of fiscal management. While borrowing can be a useful tool for economic growth, it must be done prudently and with a clear plan for repayment. The challenge for Nigeria, therefore, lies in striking a balance between borrowing for development and ensuring that the country does not overextend itself financially. With debt servicing costs likely to continue rising, it is crucial that the Nigerian government prioritises sound fiscal policies that encourage revenue generation, improve economic diversification, and reduce dependency on external borrowing.

The increase in Nigeria’s public debt is a wake-up call. While the government continues to pursue ambitious infrastructure projects, the long-term sustainability of this debt trajectory must be carefully managed. It is time for a more strategic approach to borrowing, one that not only focuses on short-term financing needs but also ensures the country’s economic future is not jeopardised by an unsustainable debt burden.