Nigeria’s rising debt: A looming crisis or necessary investment?

Nigeria’s increasing reliance on external borrowing, particularly from the World Bank, has become a focal point of economic discourse. With the World Bank set to approve another $2.2 billion loan in 2025, bringing the country’s total approved loans from the institution to $9.25 billion over three years, concerns over debt sustainability are mounting. While these funds support critical sectors such as education, healthcare, and infrastructure, the long-term implications of this growing debt burden must be critically examined.

Under President Bola Tinubu’s administration, Nigeria’s World Bank loan approvals have witnessed a significant surge. In 2023 alone, the institution approved $2.7 billion in loans, funding projects such as the Nigeria Distributed Access through Renewable Energy Scale-up Project ($750 million) and the Additional Financing for Adolescent Girls Initiative for Learning and Empowerment ($700 million). This trend continued into 2024, with approved loans reaching $4.32 billion, including $1.5 billion for the Economic Stabilisation and Transformation Development Policy Financing and $750 million for resource mobilisation reforms.

For 2025, six new loans amounting to $2.23 billion are in the pipeline, covering initiatives in digital infrastructure, healthcare, education, and economic resilience. Notably, the Building Resilient Digital Infrastructure for Growth initiative is expected to receive $500 million, while the Nigeria Health Security Programme is slated for a $300 million loan. These figures underscore Nigeria’s growing dependence on external financing to sustain its economic and developmental objectives.

Advocates of Nigeria’s borrowing strategy argue that concessional loans from multilateral institutions like the World Bank are necessary to bridge infrastructural deficits, enhance human capital development, and stabilise the economy. Given Nigeria’s limited domestic revenue generation capacity, external financing provides an essential lifeline for funding critical projects that could drive long-term growth. Furthermore, with interest rates on these loans generally lower than commercial borrowings, they offer a more sustainable financing option for developmental programs.

Investments in education, healthcare, and infrastructure through these loans could yield significant returns by improving productivity, fostering economic resilience, and enhancing Nigeria’s global competitiveness. For instance, the HOPE for Quality Basic Education for All project ($552 million) and the Community Action for Resilience and Economic Stimulus Programme ($500 million) could strengthen foundational learning outcomes and provide crucial economic support to vulnerable populations.

Despite the potential benefits, Nigeria’s escalating debt profile raises serious concerns. According to the Debt Management Office (DMO), the country’s total public debt stood at $113.4 billion as of December 2023, with external debt accounting for a significant portion. The increasing reliance on borrowing to finance recurrent expenditure rather than revenue-generating projects has exacerbated the risk of debt distress.

One of the major red flags is Nigeria’s debt service-to-revenue ratio, which exceeded 96% in 2023, indicating that nearly all of the government’s earnings were spent on debt servicing. This unsustainable trajectory limits fiscal space for critical investments and social programs, ultimately constraining economic growth.

Another pressing issue is the lack of transparency and accountability in fund utilisation. Despite substantial borrowing, tangible improvements in key sectors remain limited, raising questions about the efficiency of loan management. Without stringent fiscal discipline and a clear strategy for debt repayment, Nigeria risks plunging into a deeper debt crisis that could jeopardise future economic stability.

To navigate this complex financial landscape, Nigeria must adopt a more sustainable debt management approach. First, the government should prioritise revenue diversification by enhancing tax collection, expanding the non-oil revenue base, and curbing illicit financial flows. The NG Accelerating Resource Mobilisation Reforms Programme ($750 million) approved in 2024 is a step in the right direction, but its implementation must be thorough and result-oriented.

Also, borrowed funds should be strategically allocated to high-impact projects with clear economic returns. The government must ensure that loans are not used for recurrent expenditures but channeled into sectors that can generate employment, improve productivity, and drive economic growth.

Transparency and accountability mechanisms must be strengthened to track loan disbursement and utilisation. Establishing independent oversight committees and leveraging digital tracking systems could enhance governance and ensure that borrowed funds translate into tangible development outcomes.

While external borrowing remains a critical tool for Nigeria’s development, the current trajectory of rising debt without corresponding economic growth is unsustainable. The government must strike a delicate balance between leveraging loans for national development and ensuring fiscal prudence to avoid a full-blown debt crisis. Only through responsible debt management, revenue generation reforms, and enhanced transparency can Nigeria harness the benefits of external financing without jeopardising its economic future.