The Federal Government of Nigeria has outlined a troubling fiscal trajectory in its 2025–2027 Medium-Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP). According to the document, debt servicing is set to consume a significant portion of Nigeria’s national budget, surpassing capital expenditure for the three-year period.
Key Fiscal Projections (2025–2027):
- Debt Servicing: The total debt servicing costs for 2025 to 2027 are projected at N50.39 trillion, a staggering sum that eclipses the N48.93 trillion earmarked for capital projects.
- Capital Expenditure: Growth in capital expenditure is expected to remain sluggish, increasing only marginally by 0.18%, from N16.48 trillion in 2025 to N16.51 trillion in 2027.
- Debt Servicing vs. Capital Expenditure: Debt servicing will grow by 26.7% over the period, from N15.38 trillion in 2025 to N19.49 trillion in 2027, while capital expenditure will rise by a mere 0.18% over the same period. By 2027, debt servicing will consume 37.2% of total government expenditure, compared to 31.51% allocated for capital spending.
Concerns Over Fiscal Sustainability
The rapid increase in debt servicing costs raises alarms about Nigeria’s fiscal sustainability. In 2023, the government spent N8.56 trillion on debt servicing, and by 2027, this figure is expected to rise by 127.7% to over N19 trillion. This rapid growth in debt obligations will place increasing pressure on the government’s budget, diverting funds away from critical investments in infrastructure, healthcare, and education.
In 2025, capital expenditure is expected to constitute 34.44% of total expenditure, slightly higher than the 32.11% allocated to debt servicing. However, by 2027, this will change, with debt servicing absorbing 37.2% of the budget, while capital spending will only rise to 31.51% of the total expenditure.
Justification for Increased Debt Servicing
The MTEF/FSP document cites rising debt levels and higher interest rates as key factors contributing to the increase in debt servicing costs. Following several adjustments to the Monetary Policy Rate (MPR), which now stands at 27.25% as of September 2024, Nigeria is facing higher borrowing costs.
The government has acknowledged the challenge of managing the debt burden, but it intends to rely on a debt restructuring strategy to free up resources for critical infrastructure projects. The Debt Management Office (DMO) will also work to explore long-term, non-commercial facilities with moratoriums ranging from 5 to 7 years to ease the fiscal pressure.
Fiscal Deficits and Borrowing Plans
To cover the widening gap between revenue and expenditure, the Nigerian government plans to borrow N31.24 trillion over the next three years. This will bring the country’s total debt stock to approximately N170 trillion by 2027, up from N134.3 trillion as of June 2024. The projected budget deficits are as follows:
- 2025: N13.08 trillion
- 2026: N12.14 trillion
- 2027: N13.76 trillion
This growing fiscal deficit underscores the challenge of aligning government revenues with the increasing demands of public spending.
Domestic vs. Foreign Borrowing
The bulk of Nigeria’s new borrowing will be from domestic sources. The government plans to raise N24.98 trillion from domestic loans, with N7.37 trillion planned for 2025 alone. Domestic borrowing will account for 80% of the total new debt in 2025, with the remainder sourced from foreign creditors, pegged at N1.84 trillion.
By 2027, the share of domestic borrowing will rise to N10.59 trillion, while foreign borrowing will increase slightly to N2.65 trillion.
Implications for Nigeria’s Development Goals
The growing debt servicing costs and rising fiscal deficits could severely constrain the government’s ability to meet its development goals. Key sectors such as infrastructure development, healthcare, education, and social welfare could face significant underfunding, further exacerbating Nigeria’s infrastructure deficit and economic challenges.
The Debt Management Office (DMO) has raised concerns over the trajectory of Nigeria’s debt levels, warning that continued reliance on borrowing, particularly domestic borrowing, could lead to financial instability in the long term. The crowding out effect of rising debt servicing could undermine the government’s ability to fund critical investments and reduce the fiscal space for future development projects.
Nigeria’s fiscal outlook between 2025 and 2027 highlights a growing debt crisis that threatens the country’s economic stability. As debt servicing continues to outpace capital expenditure, the government must find sustainable solutions, including debt restructuring and boosting domestic revenue generation, to avoid derailing its development agenda. With fiscal deficits widening and a heavy reliance on borrowing, the government’s ability to invest in infrastructure and human capital development may be significantly hindered in the coming years.
