Nigeria’s debt service-to-revenue ratio could rise to 71.7 per cent by 2030, exceeding the government’s self-imposed 50 per cent limit, the Debt Management Office (DMO) has projected.
According to the DMO, the ratio stood at 60.6 per cent in 2024 but is expected to drop to 44.9 per cent in 2025 before increasing to 51 per cent in 2026 and 57.1 per cent in 2027.
It is further projected to rise to 57.4 per cent in 2028 and 67.3 per cent in 2029.
Under a shock scenario involving weaker economic conditions, the debt service burden could increase more sharply, rising from 57.4 per cent in 2026 to 70.9 per cent in 2027, 75.3 per cent in 2028, 89.6 per cent in 2029 and 97.3 per cent by 2030.
The projections are contained in the DMO’s 2024 Debt Sustainability Analysis (DSA) report, which examines Nigeria’s capacity to meet its existing and future debt obligations amid challenges such as inflation, naira depreciation, weak revenue and the government’s financing strategy.
The DMO attributed the projected increase in the debt service-to-revenue ratio under the baseline scenario to debt servicing costs growing faster than government revenue.
“This ratio is high and the fiscal space available to the Government is limited,” the report said.
“In the Shock Scenario, shortfall in domestic revenue mobilisation would push further the ratio from 57.4% in 2026 to 97.7% in 2030. Thus, fiscal space is further reduced and the ratio needs to be brought down.”
The report warned that both scenarios highlight risks to debt sustainability as debt servicing continues to place increasing pressure on government revenue.
Debt-to-GDP ratio projected to decline
Despite concerns over debt servicing, the DSA forecasts a significant reduction in Nigeria’s total public debt-to-GDP ratio over the projection period.
Under the baseline scenario, the ratio is expected to fall from 53.7 per cent in 2024 to 36.9 per cent in 2025, 33.3 per cent in 2026 and 31.3 per cent in 2027.
The DMO projects further declines to 29.7 per cent in 2028, 28.4 per cent in 2029 and 27.3 per cent in 2030.
However, under the shock scenario, the debt-to-GDP ratio is projected to rise to 39.4 per cent in 2026 and 38.7 per cent in 2027 before gradually declining to 34.6 per cent by 2030.
The office said the projected ratios remain below Nigeria’s recommended 60 per cent threshold under the Medium-Term Debt Management Strategy (MTDS) for 2024–2027, as well as the 70 per cent benchmark under the IMF-World Bank Market Access Country Debt Sustainability Analysis (MAC-DSA) framework.
The baseline projections are based on assumptions including an exchange rate of N1,500 to the dollar, real GDP growth of 4.8 per cent and a primary balance of 3.8 per cent.
For the shock scenario, the assumptions include a 30 per cent depreciation of the naira, weaker real GDP growth and a 2.3 per cent decline in revenue.
According to the report, Nigeria’s debt-to-GDP ratio stood at 53.72 per cent as of December 31, 2024, below the 70 per cent benchmark for emerging markets under the MAC-DSA framework.
The DMO also noted that the gross financing needs-to-GDP ratio was relatively low at 3.2 per cent, compared with the MAC-DSA threshold of 15 per cent.
Nevertheless, the office identified the debt service-to-revenue ratio as a major concern and highlighted three key debt-related risks: financing, refinancing and foreign exchange (FX) risks.
DMO recommends higher revenue, lower borrowing
To ease the pressure, the DMO recommended maintaining fiscal and macroeconomic reforms, boosting revenue through tax reforms and improving the efficiency of public expenditure.
It also called for reduced reliance on new borrowing, suggesting that public-private partnerships should be used to finance capital projects. The office further advised compliance with the Fiscal Responsibility Act and the Central Bank of Nigeria Act provisions governing ways and means advances.
Other recommendations included privatising or selling government assets and making greater use of concessional financing where available.
The report identified fiscal consolidation, tax reforms, more efficient public spending and exchange-rate management as important measures for moderating the debt-to-GDP and debt service-to-revenue ratios.
“Overall, the sustainability of public debt remains moderate, but highly vulnerable to weak revenue mobilisation, exchange rate devaluation and global uncertainties,” the DMO said.
The DSA also urged the government to sustain the removal of the premium motor spirit (PMS) subsidy and maintain a unified and flexible exchange rate, noting that both measures had contributed to improved revenue.
It further advised the government to widen the tax base, strengthen compliance through technology and channel public expenditure towards investments that can generate revenue and support economic growth.
The report stated that Nigeria’s total public debt stood at N133.33 trillion as of December 31, 2024. Market-based debt accounted for 69.06 per cent of the total, while non-market-based debt made up the remaining 30.94 per cent.